Selling a family holiday home can be a bittersweet decision, filled with considerations beyond just parting with property. One crucial aspect that often requires careful thought is the Capital Gains Tax (CGT) implications associated with such a sale. In this blog, we’ll explore some key considerations and rules surrounding CGT when selling a holiday home, shedding light on important factors that may impact your decision-making process.
1. Personal Use and Enjoyment:
While a holiday home is considered a personal asset, it doesn’t fall under the same CGT restrictions as other personal use assets. This means that, despite its nature, it is subject to specific rules and calculations.
2. Acquisition Date Matters:
If your holiday home was acquired on or after 20 August 1991, the costs associated with owning it, such as mortgage interest and rates, can be factored into its “cost” for CGT purposes. However, meeting CGT record-keeping requirements is crucial in this scenario.
3. Airbnb Business Considerations:
If you’ve been using your holiday home for an Airbnb business, claiming CGT concessions becomes a possibility. However, establishing this may be challenging and requires careful examination of the CGT business exemptions applicable to the sale.
4. Main Residence Exemption:
If the holiday home has been used by the owner as their main residence at any point, a full or partial CGT exemption may be available. However, this exemption comes at the cost of losing the CGT main residence exemption on any other property they own for that specific period.
5. Joint Ownership:
When dealing with the sale of a holiday home, it’s important to note that CGT consequences apply individually to each joint owner. This means that each owner’s situation must be considered separately.
6. Foreign Ownership:
For holiday homes owned by foreign residents for tax purposes, CGT applies at a higher rate without the benefit of the full CGT discount. This adds a layer of complexity for those with international ties.
7. Inherited Homes Exemption:
In the event of the owner’s passing, a holiday home may be entitled to a full exemption if acquired “pre-CGT” (before 20 September 1985). However, if acquired later, it may be fully subject to CGT.
As you contemplate selling your family holiday home, delving into the intricacies of Capital Gains Tax is crucial. Seek advice from financial advisers who specialise in property transactions to ensure you’re well-informed about the specific rules and exemptions that may apply to your situation. While parting with a cherished property is never easy, navigating the CGT landscape with prudence can help you make informed decisions that align with your financial goals.