A question for "second home" owners.
Discussion
Are people out there "stuck" with their second home?
Imagine you bought a second home many years ago for £500k and it's now worth £1m. You like the idea of selling that second home and buying a new one somewhere else for the same price. Then you look at the tax implications.
CGT at 24% on your £500k gain = £120,000
Stamp Duty on a new second home bought for £1m = £93,750
Total "moving house taxes" = £213,750 which you have to find just to get back where you started.
Would you stay or would you move? Or,
Would you sell and then rent?
After all, you can buy a lot of holidays or rent a lot of Airbnb for £200k while giving Rachel Reeves a cheery, two-fingered wave.
Imagine you bought a second home many years ago for £500k and it's now worth £1m. You like the idea of selling that second home and buying a new one somewhere else for the same price. Then you look at the tax implications.
CGT at 24% on your £500k gain = £120,000
Stamp Duty on a new second home bought for £1m = £93,750
Total "moving house taxes" = £213,750 which you have to find just to get back where you started.
Would you stay or would you move? Or,
Would you sell and then rent?
After all, you can buy a lot of holidays or rent a lot of Airbnb for £200k while giving Rachel Reeves a cheery, two-fingered wave.
I mean … the government (and prior governments, it’s not just a Labour thing) doesn’t want individuals owning second homes. Hence why they get clobbered. Not saying I agree with that (that’s a political point not a financial one).
If you aim to just stay put in the second home anyway because you don’t want transaction taxes, you’ll almost certainly get clobbered on IHT anyway.
If you aim to just stay put in the second home anyway because you don’t want transaction taxes, you’ll almost certainly get clobbered on IHT anyway.
Panamax said:
Are people out there "stuck" with their second home?
Imagine you bought a second home many years ago for £500k and it's now worth £1m. You like the idea of selling that second home and buying a new one somewhere else for the same price. Then you look at the tax implications.
No not stuck. I could sell at any time with no CGT involved.Imagine you bought a second home many years ago for £500k and it's now worth £1m. You like the idea of selling that second home and buying a new one somewhere else for the same price. Then you look at the tax implications.
There are two very similar topics running.
This was my post on the other one.
Jon39 said:
Panamax said:
Leaving aside all other considerations, CGT is a huge issue for second home owners. The scope for avoiding 24% tax on your gain (18% if you're of modest means) is very limited indeed. And bear in mind a lot of that isn't tax on real value increase, it's tax on inflation. i.e. a wealth tax.
Once a BTL is sold there's scope for investing the proceeds in tax free ISAs and SIPPs (pension), not just free from CGT but free from Income Tax as well. In addition, you get the opportunity to use the small CGT tax free annual allowance on any investments held outside the tax free wrappers. The relevance of any of this depends on your overall financial situation.
Once a BTL is sold there's scope for investing the proceeds in tax free ISAs and SIPPs (pension), not just free from CGT but free from Income Tax as well. In addition, you get the opportunity to use the small CGT tax free annual allowance on any investments held outside the tax free wrappers. The relevance of any of this depends on your overall financial situation.
It depends upon circumstances.
Say the property you inherit happens to be more valuable than your own home and also that you don't intend selling your existing home, then you have a tax free opportunity.
You have a period of time after inheriting, to nominate which property you want to be officially designated as your main residence.
That is the clue for you.
No letting though, but after many years of enjoying use, imagine the increased value and you could sell at any time, no tax payable.
If you are already making maximum use of your ISA allowances, then of course you cannot gradually drip the sale proceeds into an ISA.
The CGT allowance is now so small, it is useless. It might as well be zero.
Lowering that CGT allowance has now removed the incentive to sell any asset which would be subject to tax.
Yet another economy restraint.
Panamax said:
Are people out there "stuck" with their second home?
Imagine you bought a second home many years ago for £500k and it's now worth £1m. You like the idea of selling that second home and buying a new one somewhere else for the same price. Then you look at the tax implications.
CGT at 24% on your £500k gain = £120,000
Stamp Duty on a new second home bought for £1m = £93,750
Total "moving house taxes" = £213,750 which you have to find just to get back where you started.
Would you stay or would you move? Or,
Would you sell and then rent?
After all, you can buy a lot of holidays or rent a lot of Airbnb for £200k while giving Rachel Reeves a cheery, two-fingered wave.
Or you’d look at it with a glass half full attitude and recognise you’ve made £286,250 when you sell it. Imagine you bought a second home many years ago for £500k and it's now worth £1m. You like the idea of selling that second home and buying a new one somewhere else for the same price. Then you look at the tax implications.
CGT at 24% on your £500k gain = £120,000
Stamp Duty on a new second home bought for £1m = £93,750
Total "moving house taxes" = £213,750 which you have to find just to get back where you started.
Would you stay or would you move? Or,
Would you sell and then rent?
After all, you can buy a lot of holidays or rent a lot of Airbnb for £200k while giving Rachel Reeves a cheery, two-fingered wave.
Panamax said:
Troika - yes, I suspect there must be quite a few people in that situation.
CGT's operation as a tax on inflation, or Wealth Tax, is iniquitous.
Yep, the best thing for me really is to one day sell the primary residence tax free, release a nice lump sum to enjoy, and live in the second home. CGT's operation as a tax on inflation, or Wealth Tax, is iniquitous.
Panamax said:
Troika - yes, I suspect there must be quite a few people in that situation.
CGT's operation as a tax on inflation, or Wealth Tax, is iniquitous.
Agreed. I am another one. If CHT was calculated on actual gains I would be happy (well, ish!) to pay it. As it is it is both a wealth tax and a perverse incentive for government to promote inflation.CGT's operation as a tax on inflation, or Wealth Tax, is iniquitous.
Panamax said:
Are people out there "stuck" with their second home?
I think this question would be fairer reframed as “are people stuck with their initial choice of second home?”. And whilst “stuck with” is a little tendentious, the issues around what you want to do are real, and underline the importance in choosing a second home well and wisely. If you want to upgrade from a current second home to a better second home, then as discussed upthread there are ways to go about that. But shifting your principal residence is an upheaval and is likely to be difficult if you’ve got dependent children.
And if your second home is abroad the impracticalities compound.
A first world solution to this very first world problem might be to keep the second home and stretch a bit further to acquire a third home somewhere completely new.
Panamax said:
Troika - yes, I suspect there must be quite a few people in that situation.
CGT's operation as a tax on inflation, or Wealth Tax, is iniquitous.
CGT's operation as a tax on inflation, or Wealth Tax, is iniquitous.
Need to think ahead with second homes.
Which home do you think you are likely to sell first?
If the other one is likely to be retained until 'leaving this world', then CGT can be completely eliminated.
bennno said:
Or you'd look at it with a glass half full attitude and recognise you've made £286,250 when you sell it.
'you've made £286,250'
No you have not.
'bought at £500k and it's now worth £1m' - would suggest that the purchase was around 2004.
£500,000 in 2004 has the same monetary value as £1,100,000 today.
Tax is being charged on a fictitious gain, that is not a gain at all.
CGT used to allow an inflation adjustment, but that was ended during the Gordon Brown rule.
Left wing parties always want other peoples money, and using inflation is one way of doing that.
We recently sold our other home,
no worries about paying cgt though,
thanks to the housing market being where it is, the offer we ended up accepting meant we're actually about £40k worse off than when we bought it nearly 4 years ago
We're now in the process of moving again,
and as part of the move we've decided this time to sell our current home, which we've owned and lived in for nearly 35 years, but didn't live in for around 2 years while living at our other house, so I'm not sure if that might affect us cgt wise.
Jon39 said:
'you've made £286,250'
No you have not.
'bought at £500k and it's now worth £1m' - would suggest that the purchase was around 2004.
£500,000 in 2004 has the same monetary value as £1,100,000 today.
Tax is being charged on a fictitious gain, that is not a gain at all.
CGT used to allow an inflation adjustment, but that was ended during the Gordon Brown rule.
Left wing parties always want other peoples money, and using inflation is one way of doing that.
Pretty simple you get a home that’s exempt and you pay CGT on any additional properties, less specific / defined reliefs.
bennno said:
It s not a fictitious gain, it s a measurable one.
Pretty simple you get a home that s exempt and you pay CGT on any additional properties, less specific / defined reliefs.
Pretty simple you get a home that s exempt and you pay CGT on any additional properties, less specific / defined reliefs.
Measurable yes, but in the OPs example it was simply the result of inflation (devaluing the original purchase cost), not a gain in real terms. However, CGT is now charged on inflation.
True, one home is exempt, but you don't pay CGT in the senario that I outlined.
If you don't know which one might be sold first, then you are likely to pay CGT on one.
If you never sell either before death, you don't pay any CGT on either property.
If you let one of them, CGT becomes applicable.
If neither are ever let and you know which one you intend to sell first, that is when your opportunity occurs.
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