How to Avoid Capital Gains Tax on Second Home?

avoid capital gains tax on second home

When you are involved in the business of buying and selling properties, you must be aware of the fact that you will have to deal with capital gains tax to pay it to HMRC  when you earn a profit after selling the property. There are several cases in which people own a second house and plan to sell it and earn a good amount of profit, however, they are looking for ways to learn how to avoid capital gains tax on a second home. Normally in such a scenario where a second home is being sold out and the value of this house has indeed, there is no way to find an escape from the capital gains tax to be paid on the profit earned.

Moreover, there are some ways here professionals who tell you efficient ways to lower the amount of capital gains tax in your final bill. This might trigger the questions in your mind like how much you will have to pay in form of capital gains tax or what amount can come under this reduction amount in the final bills of capital gains tax. This post is compiled in a manner that will cover all the relevant frequently asked questions. Let us get into the details further to learn more.


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How Much Capital Gains Tax will I Pay?

Usually, there is a certain percentage of capital gains tax on the selling of property. This can be different from one person to another. Because this has to take the account taxpayers whether are paying tax on the basic tax rate or on a higher rate. In the case of paintings and other such assets, the rates are even higher than in the case of properties.


Tax Allowances for Capital Gains Tax

The tax-free limit of making capital gains is set to a figure up to £12,300 in the tax year 2023. So this means that if you are selling a property that is not making a profit more than this certain limit, you will not have to pay any capital gains tax on this profit earned after selling the second home. Now, this is imperative for couples to understand that they can combine this figure. This means that they will not pay capital gains tax on selling a second home unless the profit amount crosses £24,600.


Do I Qualify for Private Residents Relief?

Your capital gains tax in the bills can be reduced amount if you have lived in the same house for several years and then put it on as a rental property. You are eligible to avail the private resident’s relief in this way. You are also eligible to make a claim for the number of years that you have lived in the property as your main residence and a period of 9 months for it to be the rental property. You can take the advantage of private residents’ relief.


Can I Avoid CGT by Gifting My Second Home?

There are several people who are of the view that you can avoid the amount of capital gains tax in the bill by gifting the second home to another family member or a creative. This is to ensure here that you remain liable to pay the capital gains tax even if you transfer the property in someone else’s name or even if you gift it to someone. In the case of transfer, the market value of your second home will be considered to determine the amount that you will have to pay as capital gains tax. This can be beneficial for you to reduce the amount of your tax bill. However, you must talk to a professional or an accountant to figure out whether this is beneficial for your case or not.


How Do I Pay Capital Gains Tax on My Second Home?

Once you decide to pay for the second home, you will have a period of two months to let HMRC know about this and pay your capital gains tax online. You can even ask your accountant to submit it on your behalf to HMRC. However, as an individual, you will have to deal with the payment. In the case are not able to pay the amount of capital gains tax within the duration of two months, you will have to deal with the penalty fee or fines charged by HMRC. Moreover, you will also have to make it a part of the self-assessment tax returns to provide the details of the capital gains tax of the relevant tax year if any.


Can I Manage the Process Myself?

This is mostly a good idea to take the help of a professional in this regard rather than handling it all yourself. This is because the chances it lowers due to professional involvement. The submission mistakes will be reduced and your capital gains tax will also be reduced this way. There are several platforms that offer specialized professional services to handle the capital gains tax in this regard. You must keep in mind the importance of timing while you’re working with a professional for this reason. This will help you to ensure that there are no late submissions to avoid late penalties.


The Bottom Line

Now that you have gathered a fair amount of information about how to avoid capital gains tax on a second home in the UK, we can bring the discussion towards wrapping up. There are several efficient ways to handle capital gains tax avoidance when you are selling your second home and earning a good amount of profit from it. However, you will have to ensure the details are accurate even if you are working with a professional who can help you with the process as discussed earlier. You will be sure about the amount you are liable to pay as the capital gains tax in this way. We hope these few minutes of reading will help you to develop a better understanding of buying a second home and efficient ways to avoid capital tax gains in this property.


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Disclaimer: The information about how to avoid capital gains tax on a second home in the UK provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.