Second Homes

If you have more than one home, - properties actually used as your home - you can elect for one of those properties to be your tax-exempt main home. Once this election is made, it can be changed at any time, and this allows you to manage the tax you pay when disposing of your properties.

However, from April 2015 the ability to elect for one property or another to be tax-exempt may well be removed. This is because the Government wants to tax overseas residents on the profits they make when they sell their homes in the UK.

Such overseas residents live in their UK homes for only a small part of the tax year, but currently pay no UK tax when those properties are sold (although they may pay tax in another country on the gain). If the election to opt for one property to be tax-exempt remained in place, all overseas residents would opt to have their UK home treated as their tax-exempt main home, and no additional tax would be raised.

So from April 2015 which property is your tax-exempt main home will be determined by factors such as where you are located most of the tax year, or where your family is based, or where the children go to school etc. It's not clear how the elections which are currently in place will be treated.

If you are planning to dispose of one of your properties after April 2015 we can help you plan how to make the best use of the other continuing tax exemptions.

CGT on Home Developments

Your main home is exempt from capital gains tax when you sell it, but only if you bought the property with the intention of living in it on a permanent basis, not as a project to renovate and sell. People who are required to live in job related accommodation, such as prison warders and church ministers, can have a separate tax-exempt home without having to live in it.

Some taxpayers who have taken on renovation projects have found the gain on their property doesn't qualify for the tax exemption, because they can't prove they occupied the property on a permanent basis while it was being renovated before the sale.

For example, Jason Moore bought a property with his girlfriend in December 1999. He claimed to have lived there while he renovated it in the period to late February 2000, when he returned to live with his girlfriend. The property was then let to tenants until it was sold for a profit in June 2004. Jason had no documentary evidence of his time at the property in the three months to February 2000, so his claim for the tax exemption failed.

Paul Gibson went much further in knocking down his whole home and constructing a new one on the same site, which he sold shortly after it was completed. Although Paul intended to live in the new property, he was forced to sell it to repay the loans he had taken out. He claimed to have occupied the finished house for about five months before the sale, but he couldn't prove this with any documents.

If you are planning a "grand design" conversion for your own home talk to us first about the tax implications.