Index
Advanced Tax-Saving Strategies for Capital Gains on Second Homes in the UK
Legal Methods and Strategic Ownership to Reduce Capital Gains Tax on Second Homes
Tax-Efficient Exit Strategies to Minimize Capital Gains Tax on Second Homes
A Real-Life Case Study of Reducing Capital Gains Tax on Second Homes
How a Tax Accountant Can Help You Legally Avoid Capital Gains Tax on Second Homes?
Understanding Capital Gains Tax on Second Homes
Capital gains tax (CGT) is one of the most important tax considerations for UK homeowners looking to sell a second property. Given the increasing interest in property investments and rising home prices, second homes have become a popular asset in the UK. However, the prospect of paying a significant portion of your profit to the government can be daunting. This article will provide a detailed breakdown of how you can avoid or reduce capital gains tax on your second home, incorporating recent changes up to the Autumn Budget 2024, where applicable.
The Basics of Capital Gains Tax on Second Homes
In the UK, capital gains tax applies to profits made on the sale of a property that is not your main residence, which is typically the case for second homes, rental properties, or holiday homes. The amount of tax owed is based on the difference between the property’s purchase price and the price at which it is sold, minus allowable deductions and exemptions. As of 2024, some essential figures and thresholds to keep in mind include:
CGT Rates: UK residents pay 18% if they are basic-rate taxpayers and 28% if they are higher or additional-rate taxpayers. Non-residents might face different rules depending on their situation.
Annual Exemption Allowance: The annual CGT allowance for individuals has been reduced over recent years, and as of November 2024, it stands at £3,000, down from £12,300 just a few years prior. This reduction means homeowners need more robust tax planning to maximize tax savings.
Private Residence Relief (PRR): This relief is available for primary residences, offering a full or partial exemption from CGT. However, it doesn’t apply to second homes, making CGT planning crucial for these properties.
Why Capital Gains Tax Is Especially Relevant for Second Homeowners
With property values continuing to rise, CGT liabilities have increased. For instance, between 2020 and 2024, average UK property prices surged by over 15%, with popular areas like London and the South East seeing even higher increases. Suppose you purchased a second property in 2010 for £200,000, and it’s now worth £400,000. Selling it at the current market value would result in a taxable gain of £200,000. For higher-rate taxpayers, this would lead to a CGT bill of approximately £56,000, making it vital to explore legitimate ways to reduce this tax burden.
Key Strategies to Minimize or Avoid CGT on Second Homes
Private Residence Relief (PRR) Transfer While PRR primarily benefits primary residences, there are ways to extend it to a second property. One strategy is to make the second home your primary residence for a period, which can potentially allow you to claim partial PRR on the property. However, simply declaring a second home as your primary residence for tax benefits is unlikely to qualify; HMRC requires proof of genuine residence, such as utility bills, voter registration, and personal items stored at the property.
Example: John owns two homes, one in London (his primary residence) and another in Brighton. He decides to move into his Brighton property for two years before selling it. By making Brighton his primary residence and then selling it, he might be able to claim partial PRR on this property, reducing his CGT bill.
Lettings Relief For those who have rented out their second home at any point, lettings relief can provide additional tax benefits. While lettings relief was more widely available in the past, it has been restricted to cases where the property owner lived in the property at some point. In 2024, this relief allows a deduction of up to £40,000 per owner, effectively up to £80,000 for jointly owned properties.
Example: Sarah and Tom bought a second home, lived in it for a few years, and then rented it out. When they sell, they can claim up to £80,000 in lettings relief if they meet the eligibility criteria, significantly lowering their taxable gain.
Using Capital Gains Tax Allowance The annual CGT allowance, though reduced, is still beneficial for homeowners with minor gains. By offsetting gains with this allowance, they can reduce their taxable amount. Additionally, if gains are kept within the allowance threshold across multiple sales, significant savings can accrue over time.
Timing of Sale Selling your second home at an optimal time can affect the CGT payable. For example, if you anticipate a shift in tax rates or a further reduction in allowances, selling earlier may help lock in current rates. Additionally, spreading property sales across tax years allows you to leverage the annual CGT allowance multiple times.
Example: If you own multiple second properties, selling one per year, each sale may qualify for the CGT allowance, minimizing the total taxable gain across your portfolio.
Transferring Ownership to a Spouse or Civil Partner UK law allows spouses or civil partners to transfer assets to each other without incurring CGT. This strategy enables property owners to divide their CGT liability and utilize both parties' annual allowances. This approach works well for couples where one partner is in a lower tax band, as transferring part of the ownership to them can reduce the overall tax burden.
Example: Suppose Amy and Ben own a second home. Ben is a basic-rate taxpayer, while Amy is a higher-rate taxpayer. By transferring partial ownership to Ben, they can reduce their combined CGT rate, optimizing tax savings.
Recent Updates and Legislative Changes
The Autumn Budget 2024 hasn’t introduced major changes in CGT rates or rules specific to second homes. However, it reaffirmed the lower CGT allowance thresholds, which significantly impacts second homeowners. The annual exemption reduction has intensified the importance of strategic tax planning, particularly for those with multiple properties or high-value second homes.
Advanced Tax-Saving Strategies for Capital Gains on Second Homes
Above, we covered some foundational strategies that are relatively straightforward and accessible for many second-home owners. However, to minimize or avoid capital gains tax (CGT) effectively, advanced strategies can be particularly useful for higher-value properties or multiple-property portfolios. These approaches are more intricate and may require professional advice but can yield substantial tax savings if executed correctly.
Using Trusts to Minimize CGT on Second Homes
One way to reduce CGT on a second home is by placing the property into a trust. Trusts can be complex, but they offer certain tax advantages, especially for those looking to pass on properties to children or future generations.
Family Trusts Family trusts allow homeowners to pass assets down to future generations while reducing CGT exposure. In the UK, if a second home is transferred into a trust, the initial transfer may incur CGT, but subsequent gains made by the trust might benefit from specific tax planning opportunities. The trust holds the property for beneficiaries, allowing families to manage CGT by controlling how and when assets are sold.
Example: Imagine Mark owns a second home valued at £500,000, which he intends to leave to his children. By placing this property in a trust, he can manage its use and ultimately transfer it to his children in a tax-efficient manner. While the initial setup may incur some CGT and possibly inheritance tax, the structured transfer allows the family to avoid higher taxes over the long term.
Bare Trusts Bare trusts (or simple trusts) are another type that can help in CGT planning. In a bare trust, beneficiaries are immediately entitled to both the income and capital gains of the assets. This arrangement can be advantageous if the beneficiaries are in a lower tax bracket, allowing them to benefit from lower CGT rates. However, bare trusts limit flexibility because beneficiaries have the absolute right to the trust's assets, which may not align with all planning goals.
Discretionary Trusts Discretionary trusts provide trustees with flexibility over how the assets are distributed, allowing them to manage tax liabilities based on the beneficiaries’ circumstances. While this type of trust may not always reduce CGT directly, it can help distribute assets in a way that minimizes overall tax exposure across the family. Discretionary trusts also enable the trustees to retain control over the timing and amount of any asset transfers, which is especially useful for properties expected to appreciate further.
Caution: Trusts are subject to complex rules and additional tax considerations, including inheritance tax and potentially higher income tax rates. Therefore, it’s essential to consult with a tax advisor experienced in trusts to assess whether this strategy fits your goals.
Setting Up a Property Holding Company
Setting up a limited company to hold property assets is another strategy that can provide CGT advantages, especially for individuals with multiple rental or investment properties. This approach essentially turns personal property assets into company-held assets, where gains are taxed under corporation tax rules rather than individual CGT rates. Although this structure can offer long-term tax savings, it is most beneficial when implemented as part of a broader portfolio strategy.
Corporation Tax Benefits Since April 2023, the corporation tax rate in the UK is set between 19% and 25%, depending on the profits generated. This rate is generally lower than the higher 28% individual CGT rate for higher-rate taxpayers, which can make a limited company a more tax-efficient structure for holding investment properties. When properties are eventually sold, any gains are subject to corporation tax rather than CGT, potentially reducing the total tax liability.
Example: Suppose Sarah owns multiple rental properties. By transferring these properties into a limited company, she can reduce her tax rate on gains to the corporation tax rate, potentially saving thousands in taxes. However, the transfer itself may trigger CGT, so this strategy is generally more effective for newly acquired properties or when a long-term plan is in place.
Dividends and Tax-Deferred Growth A property holding company can defer tax obligations because, as a company, it does not immediately pay out all earnings. Instead, owners can withdraw profits as dividends over time, managing personal income tax more effectively. Dividends received up to certain thresholds are tax-free, and shareholders can utilize their personal dividend allowance to reduce income tax obligations further. This flexibility can be beneficial for individuals looking to control cash flow from their properties without incurring immediate CGT.
Considerations and Costs Setting up and maintaining a company has associated costs, including administrative expenses, additional reporting requirements, and possibly higher mortgage rates. Mortgage lenders may also have stricter criteria for lending to a company than to an individual, so it’s crucial to evaluate these factors before deciding to establish a property holding company.
Reinvestment Options and CGT Deferral
Reinvestment is another strategy to consider, particularly through vehicles like the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), which allow investors to defer CGT by reinvesting gains in qualifying companies. By diverting capital from a property sale into these schemes, investors can defer CGT payments or, in some cases, avoid CGT altogether if the investment meets certain criteria.
Enterprise Investment Scheme (EIS) The EIS allows investors to defer CGT on property sales by reinvesting proceeds into a qualifying EIS investment. If the investment is held for at least three years, no CGT will be due on the reinvested gains, as long as the shares remain in the scheme. This scheme can be especially beneficial for investors who wish to support UK businesses and are comfortable with higher-risk investments.
Example: Alex sells his second home and reinvests £100,000 of the gains into an EIS fund focused on renewable energy companies. As long as he holds this investment for at least three years, he can defer CGT on his property gain, potentially saving thousands.
Seed Enterprise Investment Scheme (SEIS) SEIS is similar to EIS but is focused on early-stage companies, offering even more generous tax benefits, including a 50% income tax relief on investments up to £100,000. SEIS also allows for CGT relief on half of the investment amount, and if the shares are held for three years, the remaining CGT liability may be waived. However, SEIS investments tend to be high-risk, so this option is more suitable for investors willing to take on greater financial risk.
Other Investment Vehicles Investors can also explore other tax-efficient investment vehicles such as Venture Capital Trusts (VCTs), which offer tax-free dividends and capital gains if held for five years. These schemes do not directly eliminate CGT on property sales but can be a strategic choice for investors who plan to reinvest sale proceeds and are looking for both income and CGT savings over time.
Caution: These investments are complex, often high-risk, and best suited for sophisticated investors who understand the risks. Working with a financial advisor familiar with EIS, SEIS, and VCT investments is recommended to ensure that this approach aligns with your financial goals and risk tolerance.
Gifting the Property to Family Members
Gifting property to family members, such as children or grandchildren, can also reduce CGT exposure, particularly if the recipients are in a lower tax bracket or have allowances that can help offset the gain. However, property transfers to family members are treated as sales for CGT purposes, which means the donor is liable for CGT on the market value of the property at the time of the gift, even if no money changes hands.
Tapered Relief for Gifting Tapered relief on CGT does not directly apply in the UK, but gifting over a period or as part of a lifetime planning strategy can potentially reduce the CGT burden. If the property appreciates significantly over time, distributing gains over several tax years by gifting portions of the property can enable families to take advantage of multiple CGT allowances.
Utilizing Inheritance Tax (IHT) Exemptions Gifting property also interacts with inheritance tax (IHT) rules. If the donor survives for seven years following the gift, the property will not count towards their estate for IHT purposes. Although this strategy does not directly reduce CGT, it can mitigate the family’s overall tax burden if the aim is to pass on assets over time.
Example: Emma decides to gift her second home to her son, Oliver, who is a basic-rate taxpayer. By transferring part of the ownership each year, they can utilize both of their annual CGT allowances to reduce the overall tax liability. If Emma lives for seven years after the final transfer, the property may be exempt from IHT.
Mortgage and Leverage Strategies to Manage Taxable Gains
Leveraging debt or refinancing a property can also help manage CGT liabilities by reducing the net gain realized upon sale. For instance, homeowners can refinance a property, taking out a mortgage against its value and using the proceeds to invest in other assets or for personal use. When the property is eventually sold, the outstanding mortgage amount reduces the net proceeds, resulting in a lower taxable gain.
Equity Release and Offset Equity release schemes allow homeowners to access the value tied up in their property without selling it outright. By taking out a loan against the property, homeowners can reduce the taxable gain upon eventual sale, as the debt offsets some of the gains.
Offset Mortgages for CGT Planning Offset mortgages combine a savings account with a mortgage, allowing property owners to reduce interest payments on the loan. While this doesn’t directly reduce CGT, using an offset mortgage can effectively lower costs and make it financially viable to hold onto the property longer, potentially qualifying for future reliefs or exemptions.
Example: James takes out a mortgage on his second property, using the proceeds to fund another investment. By reducing the equity in his property, he lowers his potential gain upon sale, which could help manage his CGT liabilities.
The Importance of Proper Documentation and Professional Advice
While these advanced strategies can provide substantial tax benefits, their complexity demands careful documentation and professional advice. HMRC requires thorough records to substantiate claims, so keeping detailed records of purchase and sale dates, valuations, occupancy details, and financial transactions related to the property is essential. Consulting with tax professionals familiar with UK property taxes and advanced tax-planning tools can be invaluable in achieving optimal results.
A Summary of the Strategies for Avoiding Capital Gains Tax on Second Homes
Legal Methods and Strategic Ownership to Reduce Capital Gains Tax on Second Homes
In Part 2, we explored advanced tax-saving tactics such as using trusts, setting up property holding companies, reinvestment options, and gifting strategies. In this section, we’ll discuss legal methods and ownership strategies that can further help reduce or defer CGT on second homes. These techniques are designed for UK taxpayers who wish to optimize their tax position while remaining compliant with HMRC regulations. By understanding how holding periods, ownership structures, and offsetting strategies work, you can further reduce your tax liability in a strategic, lawful manner.
Understanding the Impact of Holding Periods on CGT
The duration you hold a property can significantly impact your CGT liability. In general, holding a property longer allows it to appreciate more, leading to larger gains. However, by carefully planning the timing of your sale, you can make use of tax-free allowances over time or potentially benefit from future changes in tax laws.
Timing Sales Over Multiple Tax Years One effective approach is to time property sales so that gains are spread across several tax years. This way, you can leverage your annual CGT allowance multiple times. As of 2024, each individual in the UK has an annual CGT allowance of £3,000. If you plan to sell more than one property or a property with substantial gains, staggering the sales over different tax years allows you to offset a larger portion of the total gain.
Example: Emma owns two second homes she plans to sell. Instead of selling both in one tax year, she sells one in 2024–2025 and the other in the following tax year. By utilizing her CGT allowance for each sale, she can shield £6,000 from CGT altogether, minimizing her overall tax liability.
Holding Out for Possible Legislative Changes Tax laws can and do change regularly, and governments occasionally introduce tax cuts, new reliefs, or even targeted incentives for property owners. Staying informed of potential upcoming tax policy changes or budget announcements could save significant amounts if changes favor CGT reductions. However, this approach comes with risk, as tax laws could become more restrictive instead.
Utilizing Joint Ownership and Shared Ownership Structures
Joint ownership can be a highly effective strategy to reduce CGT on second homes, especially if your spouse or civil partner is in a lower tax bracket. The UK allows property owners to split ownership, which can lower the taxable gain if both parties use their individual CGT allowances and personal tax bands.
Transferring Ownership to a Spouse or Civil Partner Transferring property ownership between spouses or civil partners is tax-free in the UK, which allows you to strategically divide the ownership and maximize tax efficiency. For example, if one partner is in a lower tax bracket or has unused CGT allowance, this tactic can yield considerable tax savings. Keep in mind that transferring the property’s ownership doesn’t mean you have to transfer full control; many couples opt to split ownership 50/50 to distribute the tax burden more evenly.
Example: Liam, a higher-rate taxpayer, owns a second home with a substantial gain. By transferring half of the property to his spouse, Sarah, who is a basic-rate taxpayer, they effectively reduce the CGT on the gain, as Sarah’s portion will be taxed at 18% rather than 28%, in addition to using both of their CGT allowances.
Setting Up Tenants in Common Ownership For those who co-own property with someone other than a spouse, structuring ownership as tenants in common allows each owner to hold a specified share of the property. This structure can be particularly useful if one owner has a lower tax rate, as their share of the gain will be taxed at their individual rate. While tenants in common can’t fully split ownership for tax-free transfers like spouses, they can adjust ownership shares to match individual tax circumstances.
Trust-Based Ownership and Family Trusts As discussed in Part 2, trusts provide a flexible ownership structure that can benefit family members while potentially reducing CGT. Family trusts, for instance, allow the property to be held on behalf of beneficiaries, such as children, who may have lower tax rates. However, trusts have their own tax regulations, so it’s crucial to plan carefully and seek professional advice.
Offset Losses to Minimize Taxable Gains
One of the most straightforward ways to reduce CGT is to offset capital losses against gains. UK tax law allows individuals to use capital losses from other investments, property, or assets to offset their taxable gains, thereby lowering the overall CGT liability.
Offsetting Losses From Other Investments If you have other investments that have decreased in value—such as stocks, bonds, or even other properties—selling them in the same tax year as a gain can help offset the profit. HMRC allows you to claim capital losses on investments in the same tax year, which can reduce the overall taxable gain from selling a second property. Be mindful, though, that the loss must be realized (i.e., the asset must be sold) in order to claim it.
Example: Rachel plans to sell her second home with a £100,000 gain, which would attract CGT at 28% if she is a higher-rate taxpayer. In the same tax year, she sells some shares at a £20,000 loss, reducing her taxable gain to £80,000 and thus saving £5,600 in CGT.
Carrying Forward Losses From Previous Years HMRC also permits you to carry forward unused losses indefinitely, applying them against future gains. If you’ve reported a capital loss in previous years but didn’t have any gains to offset at the time, you can apply this loss to reduce gains on a current or future property sale. This strategy is particularly useful for those who may have recently suffered losses in other investments but plan to sell a second home later.
Example: Martin reported a £30,000 capital loss two years ago but didn’t have any gains to offset at that time. He now plans to sell a second home with a £50,000 gain. By applying his past loss, Martin reduces his taxable gain to £20,000, significantly lowering his CGT.
Using Capital Expenditures to Increase Your Cost Basis
One of the most effective ways to reduce CGT is by increasing the “cost basis” of the property. The cost basis is essentially the original purchase price plus any qualifying capital expenditures that add value to the property. This means that if you’ve made improvements to your second home, you can add these expenses to the property’s base cost, reducing the taxable gain.
Qualifying Capital Expenditures Capital expenditures are significant renovations or improvements that increase the property’s value. Examples include extensions, conversions, or major upgrades to kitchens, bathrooms, or other structural components. Routine repairs or maintenance costs, however, are not considered capital expenditures and cannot be added to the cost basis.
Example: Sophia purchased a second home for £200,000 and spent £50,000 on a loft conversion. When she sells the property, her cost basis is now £250,000 instead of £200,000. If she sells the property for £350,000, her taxable gain is reduced to £100,000 instead of £150,000.
Documenting Improvements for HMRC Proper documentation is crucial for proving capital expenditures to HMRC. Receipts, invoices, and records of improvements should be kept securely to substantiate the increased cost basis. In the event of an audit, HMRC will likely require evidence to verify the claim, so detailed documentation can prevent future disputes and penalties.
Making Use of Principal Private Residence (PPR) Relief on Part of the Property
While PPR relief typically applies only to primary residences, certain second-home owners may qualify for partial PPR relief if the property was once their primary residence. This scenario is particularly relevant if you’ve used the property as your main home for a period before renting it out or designating another home as your primary residence.
Qualifying for Partial PPR Relief Partial PPR relief is possible if the property was genuinely used as a main residence for part of the ownership period. In such cases, the CGT can be reduced based on the proportion of time the property was occupied as a primary residence. Additionally, the last nine months of ownership are generally exempt from CGT under the “final period exemption,” even if the property was rented out during that time.
Example: Lucy purchased a second home and lived in it as her primary residence for five years before renting it out for another five years. When she sells the property, she is eligible for partial PPR relief on the five years it served as her primary residence, plus an additional nine months, significantly reducing her CGT liability.
Utilizing Lettings Relief Alongside PPR Relief If you rented out the property after living in it, you might be eligible for lettings relief. Lettings relief is available up to £40,000 per person and can further reduce the taxable gain if the property was both a primary residence and a rental property at different points. Although lettings relief has been restricted in recent years, it remains a viable option for those who meet the criteria.
Employing Capital Gains Tax Deferment Through Remortgaging
Remortgaging a property before selling can provide a short-term solution for CGT deferment, helping to reduce the amount of cash gained at the point of sale. Although remortgaging doesn’t reduce CGT directly, it may assist in managing the financial impact by delaying some tax obligations.
Using Mortgage Proceeds to Defer Gains Remortgaging allows you to extract equity from the property without selling it immediately. By doing so, homeowners can take out a new mortgage at current property values, receive the funds tax-free, and then sell the property at a later date. If market conditions are favorable, this tactic provides liquidity and may defer tax payments until a more advantageous time.
Example: Dan remortgages his second home, which has significantly appreciated, and takes out a mortgage against the increased value. He uses the mortgage proceeds for other investments or personal use, then decides to sell the property at a later date when CGT allowances or rates may be more favorable.
Risks and Considerations It’s essential to consider the potential risks associated with remortgaging, as taking on debt introduces financial liabilities. Additionally, future property value fluctuations and interest rate changes could impact your ability to repay the mortgage. This strategy is most suitable for those with substantial financial flexibility and an appetite for moderate risk.
Tax-Efficient Exit Strategies to Minimize Capital Gains Tax on Second Homes
In previous parts, we covered a variety of strategies that second-home owners can use to reduce or avoid capital gains tax (CGT) in the UK. Part 4 focuses on tax-efficient exit strategies specifically designed for those looking to manage or defer CGT as part of a broader financial or retirement plan. By carefully structuring the timing, method, and purpose of the sale, property owners can optimize their tax liability, potentially saving thousands in CGT.
Structuring the Sale of Your Second Home for Retirement
One approach for reducing CGT on a second home is to incorporate the sale into a broader retirement strategy. By planning the sale in line with retirement income needs, you can better manage the tax burden and create a sustainable income source. Here are some ways to do so effectively.
Phased Selling Through Installment Sales Instead of selling the property in one go, you might consider an installment sale, where the buyer pays in stages over a period. This approach spreads out the capital gain across multiple tax years, which allows you to utilize multiple CGT allowances and potentially keep within a lower tax band each year. It’s an ideal strategy for retirees or those entering retirement who are in no rush to receive the entire sale amount upfront.
Example: Suppose Anna is selling her second home for £300,000 and is approaching retirement. By structuring the sale as an installment agreement where the buyer pays £100,000 annually over three years, she can offset a portion of the gain with her annual CGT allowance each year, significantly reducing her tax liability.
Aligning the Sale with a Drop in Income If you’re about to retire or expect a substantial drop in income, it might be wise to wait until your income has reduced before selling your second home. Since CGT rates are tied to your income tax band, a lower income level could mean that more of your capital gain is taxed at the basic rate of 18%, rather than the higher rate of 28%. This can be particularly advantageous if you’ve just entered retirement and anticipate a lower taxable income.
Using Pension Contributions to Reduce Taxable Income For those still earning income when planning the sale, making additional pension contributions can reduce your taxable income, potentially dropping you into a lower tax bracket for CGT purposes. For example, if a significant pension contribution brings you down to a basic-rate taxpayer, the CGT on your property gain would be 18% instead of 28%, providing considerable tax savings.
Example: David, a higher-rate taxpayer, is selling a second home with a significant gain. By contributing a substantial sum to his pension in the same tax year, he can lower his taxable income to the basic rate threshold, reducing his CGT liability by 10% on the gain.
Utilizing Charitable Donations as a CGT Offset
Charitable giving can also be a powerful tool for reducing CGT liability. The UK government offers tax relief on donations made to registered charities, which not only benefits the charity but can also help mitigate CGT.
Donating Part of the Property or Proceeds Donating a portion of the property itself or a part of the proceeds from its sale can reduce your CGT liability. When you donate to a registered charity, the value of the donation can be deducted from the total gain, effectively lowering the taxable amount. This strategy may be beneficial if you were already planning charitable contributions, allowing you to reduce your tax burden while supporting a cause you care about.
Example: Emily is selling a property with a significant gain and plans to donate 10% of the proceeds to a registered charity. By doing so, she can deduct this amount from her total taxable gain, which reduces her CGT liability and increases the net benefit of her contribution.
Gift Aid Contributions While Gift Aid doesn’t directly offset CGT, it can enhance the tax efficiency of your donation. Gift Aid allows taxpayers to increase the value of their donation by 25%, and higher-rate taxpayers can claim back the difference between the basic and higher rates on the donation. Though it won’t directly lower your CGT bill, Gift Aid can reduce your overall tax liability and improve the net benefit of your charitable contributions.
Example: If Richard, a higher-rate taxpayer, donates part of his property proceeds under Gift Aid, he can claim back additional tax relief, enhancing the overall financial benefit of his donation.
Leveraging Rollover Relief and Business Asset Disposal Relief (BADR)
Although rollover relief and BADR are generally intended for business assets, some second-home owners may qualify if they operate a business from their property. If the property is used partially or wholly for business purposes, you may be able to defer or reduce CGT through these specific reliefs.
Rollover Relief for Mixed-Use Properties Rollover relief allows you to defer CGT if you reinvest the proceeds of a property used for business into a replacement qualifying asset. If your second property serves a dual purpose—such as a home and an office or a rental property with part business usage—you may qualify for rollover relief on the business portion of the property. The deferred tax liability would only arise when the new asset is sold, offering temporary CGT relief.
Example: Louise owns a second property where she runs a small bed-and-breakfast business. Upon selling the property, she reinvests the proceeds into another qualifying business property, enabling her to defer CGT on the business-use portion of the gain under rollover relief.
Business Asset Disposal Relief (BADR) Formerly known as Entrepreneurs’ Relief, BADR allows eligible business owners to pay a reduced CGT rate of 10% on qualifying gains. If your second home is used for business, and you’re selling the business as a whole, you may qualify for this relief. However, strict conditions apply, including ownership and business usage duration requirements, so it’s essential to verify eligibility with a tax professional.
Example: Tom operates a holiday rental business from his second home. When he decides to retire and sells the property along with the business, he may be eligible for BADR, which would reduce his CGT rate on the gain to 10%, yielding substantial tax savings.
Strategic Mortgage Planning for CGT Mitigation
Strategic mortgage planning, particularly through remortgaging or taking out an offset mortgage, can be useful for property owners looking to defer or reduce the CGT impact.
Remortgaging for Tax-Efficient Cash Extraction Remortgaging can provide immediate liquidity without triggering CGT, as borrowing against a property is not considered a taxable event. By extracting cash from the property through remortgaging, homeowners can access funds without having to sell the asset outright. When they eventually sell, the outstanding mortgage can effectively reduce the net gain, resulting in a lower CGT bill.
Example: Michael owns a second home worth £600,000, purchased for £300,000. He remortgages the property for £500,000 and withdraws £200,000. If he later sells the property for £600,000, his net gain will be lower due to the mortgage balance, reducing his CGT liability.
Using Offset Mortgages for CGT Efficiency An offset mortgage links a savings account with the mortgage balance, which reduces interest payments on the loan. While this approach does not directly impact CGT, it can make it financially viable to hold the property for longer, potentially benefiting from future allowances or rate changes.
Charitable Trusts as a Long-Term CGT Planning Tool
For those with significant wealth, creating a charitable trust may be an appealing way to manage CGT and support philanthropic goals. Charitable trusts provide flexibility for individuals wishing to dedicate part of their estate or property assets to charitable purposes, which can include second homes. By establishing a charitable trust, you can benefit from various tax reliefs, including a reduction in CGT and inheritance tax (IHT).
Setting Up a Charitable Trust to Transfer Property Assets Property owners can transfer a second home into a charitable trust, which would allow the property to be used for charitable purposes. Upon transferring the property, the gain may be exempt from CGT, and the property could eventually be passed to a charity without additional tax. This strategy is particularly beneficial for those who are no longer dependent on the property for personal income.
Example: Jane owns a second home that she no longer uses and wishes to leave a legacy to a local charity. By transferring the property to a charitable trust, she avoids CGT on the transfer and helps support the charity in the future.
Lifetime Trusts with Charitable Purposes Setting up a lifetime trust that includes charitable beneficiaries can also provide CGT advantages, especially if structured with charitable intent. For instance, a lifetime trust could allow for a partial interest in the property to be donated to charity, providing a CGT reduction on that portion. This approach, however, requires careful planning and consultation with legal and tax advisors.
Implementing the Holdover Relief for Gifts
Holdover relief is another powerful tax deferral option, especially when gifting property to family members or transferring it through a trust. When you gift a property to certain trusts or qualifying family members, you can defer the CGT until the recipient disposes of the asset.
Deferring CGT Through Family Trusts with Holdover Relief By transferring a property to a family trust, you can defer the CGT liability until the trust eventually disposes of the property. This strategy is useful if you wish to pass on the property to future generations without triggering an immediate CGT bill, as the tax liability is deferred rather than eliminated.
Holdover Relief for Agricultural and Business Assets In certain cases, properties that qualify as business or agricultural assets are eligible for holdover relief, allowing owners to pass on the property while deferring the CGT. This strategy may apply if a second home is used for qualifying business purposes, such as a farm or holiday rental business. The tax is only due when the new owner sells the asset, which could be postponed for generations if the property is held in a family trust.
Exit Strategy Planning for Second Homes: Timing and Tax Changes
Tax laws are subject to change, and it’s essential to stay informed on policy updates, such as those outlined in the Autumn Budget 2024. While there were no significant CGT rate changes for second homes in the 2024 budget, the reduction in the CGT allowance reinforces the need for proactive tax planning. By timing property sales to coincide with favorable tax conditions and planning around anticipated policy shifts, property owners can effectively manage their long-term tax exposure.
Leveraging Legal Structures, Residency Planning, and International Strategies to Optimize CGT on Second Homes
In our final section, we’ll cover advanced strategies, including residency planning, leveraging international tax treaties, and exploring complex ownership structures to reduce or avoid capital gains tax (CGT) on second homes. These approaches are particularly relevant for UK taxpayers with substantial property portfolios, dual residency, or international investments. By strategically managing residency and ownership, property owners can further optimize their tax position and take advantage of tax efficiencies available both domestically and internationally.
Maximizing Tax Benefits Through Residency Planning
Residency status plays a crucial role in determining CGT liabilities in the UK. For those who have flexibility in where they reside, strategic residency planning can be an effective way to minimize CGT on second homes. Understanding how the UK’s residency rules work and potentially taking advantage of non-residency status can lead to significant tax savings.
Non-UK Residency and CGT Non-residents are generally not liable for UK CGT on the sale of their UK assets, except for certain categories like residential property. However, CGT rules for non-UK residents are different, and the tax obligation is based only on the gains made since April 6, 2015. This means that if you move abroad and establish non-resident status, you might be able to reduce CGT on gains made before that date.
Example: Alex owns a second home in the UK and moves abroad to become a non-UK resident. When he sells the property, only the gains made since April 6, 2015, are taxable in the UK. His earlier gains are not subject to UK CGT, providing a potential tax-saving opportunity.
The Statutory Residence Test (SRT) The UK Statutory Residence Test (SRT) helps determine your tax residency. Under the SRT, you are considered a non-resident if you spend fewer than 16 days in the UK in a tax year (for those who were UK residents in previous years) or fewer than 46 days (if you were a non-resident for the previous three years). By carefully managing time spent in the UK, property owners with overseas residences can potentially avoid UK residency status, thereby minimizing their CGT obligations.
Temporary Non-Residence Rules Temporary non-residents should be cautious, as the UK imposes CGT on property sales made during short-term non-residency if you return to the UK within five years. This rule is particularly important for UK property owners who move abroad temporarily, as any gains realized during the non-residency period may still be taxed upon return.
Example: Rachel leaves the UK and sells her second home while living abroad. She returns to the UK after three years, and under the temporary non-residence rule, the gain from the sale becomes taxable as if she had never left. This rule prevents short-term non-residents from evading UK CGT on property gains.
Exploring Ownership Structures: Limited Liability Partnerships (LLPs) and Offshore Trusts
Using specific legal structures like limited liability partnerships (LLPs) or offshore trusts can provide advanced CGT planning options, though these structures require careful legal and tax guidance.
Limited Liability Partnerships (LLPs) for Property Investments LLPs are a flexible legal structure that can be used for property investments, especially when properties are co-owned or managed as a business. LLPs allow for efficient profit distribution among partners, potentially allowing each partner to utilize their annual CGT allowance or capitalize on their individual tax bands. This structure is particularly beneficial for family members who want to hold property jointly without incurring a high CGT burden upon sale.
Example: James and his two sons hold a second property through an LLP. When they sell, each partner can use their CGT allowance, thereby reducing the overall tax liability. Additionally, the LLP structure simplifies profit-sharing and tax planning for future investments.
Offshore Trusts for High-Value Property Offshore trusts can provide CGT benefits for UK residents with substantial assets, though they are highly regulated and require a thorough understanding of UK tax laws. By transferring property to an offshore trust, gains may not be immediately taxable in the UK, depending on the residency of the beneficiaries and the trust’s jurisdiction. Offshore trusts are most effective for non-UK domiciled individuals who plan to keep assets outside the UK’s direct tax scope.
Caution: Offshore trusts are subject to scrutiny by HMRC, and complex anti-avoidance rules apply. It’s essential to work with a legal advisor experienced in international tax law to ensure compliance with UK tax regulations and avoid unintended tax consequences.
Leveraging Double Taxation Agreements for CGT Efficiency
For individuals with properties in multiple countries, double taxation agreements (DTAs) can be a valuable tool. The UK has DTAs with numerous countries, which help prevent taxpayers from being taxed twice on the same gain. By understanding how these treaties apply, property owners can reduce or eliminate CGT in one or both jurisdictions.
Applying the Double Taxation Treaty to Property Sales Under most DTAs, property income and gains are taxable primarily in the country where the property is located. For UK residents with second homes abroad, this means that foreign property gains are often exempt from UK CGT, and only taxed in the property’s country. Conversely, non-residents selling UK property may be subject to UK CGT but might be able to claim relief from CGT in their home country.
Example: Sarah, a UK resident, owns a second home in France. When she sells the property, the France-UK DTA specifies that CGT is due in France, not the UK. This allows her to avoid double taxation and potentially benefit from more favorable tax treatment in France.
Tax Credits and CGT Relief Under DTAs If both the UK and another country impose CGT on the same gain, many DTAs allow the taxpayer to claim a credit for the foreign tax paid. This tax credit can then be used to offset the UK CGT liability, reducing the total tax burden. However, the availability and amount of credit depend on the specific DTA and the amount of foreign tax paid.
Example: Daniel, a UK resident, sells a holiday home in Spain and pays Spanish CGT on the gain. He can claim a credit for the Spanish CGT paid when calculating his UK CGT, which reduces his UK liability and prevents him from paying tax twice on the same gain.
Exploring Principal Private Residence (PPR) Relief in the Context of International Residence
For UK expatriates or individuals who spend significant time abroad, understanding how PPR relief applies to international residences is essential. While PPR relief generally applies to a primary residence, in certain cases, UK residents who move abroad can designate a property outside the UK as their main residence for CGT purposes, thereby qualifying for partial or full PPR relief.
Designating an Overseas Property as a Principal Residence UK expatriates who meet certain residency criteria may designate an overseas property as their main residence, qualifying it for PPR relief. The property must genuinely be the primary residence, with sufficient evidence to satisfy HMRC. For example, if a UK resident spends most of their time in an overseas property and uses it as their main home, they might be able to claim PPR relief on that property.
Example: Oliver, a UK resident who relocates to Italy, lives primarily in an Italian property while maintaining a second home in the UK. By designating the Italian property as his main residence, he could qualify for PPR relief in the event of its sale, potentially saving on CGT.
Dual Residence Considerations and PPR Nomination For those with dual residences, HMRC allows property owners to nominate one property as their principal residence, even if they split their time between two properties. If one of these properties is outside the UK, proper documentation is essential to secure PPR relief on that property. This relief is especially beneficial for individuals with high-value second homes in tax-friendly jurisdictions.
Utilizing Capital Losses from Overseas Properties
Capital losses on overseas properties can also be used to offset gains on UK properties, provided certain conditions are met. If you sell a foreign property at a loss, you may be able to carry forward this loss and use it to offset gains on other properties, reducing your UK CGT liability.
Claiming Foreign Property Losses on UK Tax Returns Capital losses from foreign property sales can be reported to HMRC, allowing the taxpayer to apply them to future capital gains on UK properties. However, it’s important to note that foreign losses must be claimed within four years of the end of the tax year in which the loss was incurred. Proper documentation of the foreign loss, including proof of sale and valuation, is required to claim the offset.
Example: Clara sells a second home in Portugal at a £50,000 loss. She files this loss with HMRC and uses it to offset a future gain on her UK second home, saving on CGT in the UK.
Offsetting Foreign Losses Against Domestic Gains Although HMRC requires specific documentation, offsetting foreign losses against UK gains can be highly advantageous for those with diversified property investments. For individuals planning future UK property sales, tracking losses from overseas investments and reporting them accurately can provide substantial tax benefits.
Final Considerations for Strategic CGT Planning
As property values rise and CGT allowances decrease, strategic CGT planning is becoming increasingly important for UK property owners. Each of the methods discussed in this five-part article offers unique benefits, but effective CGT planning often requires a combination of these strategies. Key considerations include:
Staying Informed of Legislative Changes The UK government regularly adjusts tax allowances, rates, and residency requirements. For instance, the reduced CGT allowance of £3,000 as of 2024 necessitates a more proactive approach to tax planning. By monitoring annual budget announcements, property owners can better plan their sale timing and structure, making the most of available reliefs.
Consulting a Tax Professional for Complex Strategies Many of the strategies discussed—such as residency planning, trust creation, and international tax treaties—are complex and may trigger anti-avoidance rules if not managed correctly. Consulting with a tax advisor experienced in CGT, international taxation, and property investment is crucial to avoid potential pitfalls and ensure compliance.
Documentation and Record-Keeping HMRC requires evidence for any claims on capital losses, residency status, PPR relief, and other tax-relief measures. Property owners should maintain meticulous records, including valuations, proof of residency, sales agreements, and receipts for qualifying improvements, to support any CGT relief claims.
Through careful planning and the strategic application of these advanced tax-saving techniques, UK property owners can significantly reduce their CGT liabilities on second homes, maximizing financial returns while ensuring compliance with UK tax regulations. By integrating CGT strategies into a broader financial and retirement plan, property owners can achieve substantial long-term tax efficiencies and make the most of their property investments.
A Real-Life Case Study of Reducing Capital Gains Tax on Second Homes
In the UK, owning a second home can lead to significant Capital Gains Tax (CGT) liabilities upon sale. However, there are several legal methods to reduce or avoid this tax. This case study illustrates how John, a hypothetical homeowner, effectively minimized his CGT liability through strategic planning and utilizing various tax reliefs and allowances.
Background
John is a higher-rate taxpayer who purchased a second home in London in 2010 for £250,000. By 2024, the property value has increased to £600,000. He plans to sell the property but wants to minimize his CGT liability legally.
Step-by-Step Process
Understanding CGT and the Exemptions:
In 2024-25, the CGT-free allowance for property is £3,000, a reduction from £6,000 in the previous year.
CGT rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.
John’s gain from the property sale is £350,000 (£600,000 - £250,000).
Utilizing Private Residence Relief (PRR):
PRR exempts the gain on the sale of a property that has been John’s main residence at some point.
John lived in the second home for two years during renovations.
PRR covers the periods when the property was John’s main residence plus the last nine months of ownership.
Calculation of PRR: Since John owned the property for 14 years and lived in it for two years, plus the additional nine months, PRR applies for 2.75 years.
PRR Amount: (2.75/14) x £350,000 = £68,750.
Nomination of Main Residence:
John nominated the second home as his main residence to benefit from PRR.
This nomination had to be made within two years of purchasing the second property.
Lettings Relief:
Since John rented out the property when he wasn't living there, he qualifies for Lettings Relief.
Lettings Relief can exempt up to £40,000 of the gain.
John ensured the shared occupancy with tenants was correctly documented.
Amount eligible for Lettings Relief: £40,000.
Annual Exemption:
John can use the CGT annual exemption of £3,000.
This exemption is deducted from the taxable gain.
Crystallization of Capital Losses:
John had previously incurred a capital loss of £10,000 from a different investment.
He crystallized this loss to offset it against the gain from the property sale.
Calculations
Total Gain:
Sale Price: £600,000
Purchase Price: £250,000
Gain: £350,000
Deductions:
PRR: £68,750
Lettings Relief: £40,000
Annual Exemption: £3,000
Capital Loss: £10,000
Taxable Gain:
£350,000 - (£68,750 + £40,000 + £3,000 + £10,000) = £228,250
CGT Liability:
John is a higher-rate taxpayer, so his CGT rate is 24%.
CGT Due: 24% of £228,250 = £54,780
Additional Strategies
Timing of Sale:
John sold the property before further reductions in CGT allowances took effect, ensuring a larger portion of the gain remained tax-free.
Pension Contributions:
By making additional pension contributions, John reduced his taxable income, potentially lowering his CGT rate from 24% to 18%.
Ownership Structure:
John considered transferring part ownership to his spouse, who is a basic-rate taxpayer, to utilize her lower CGT rate and additional annual exemption.
Reinvesting in Enterprise Investment Schemes (EIS):
John reinvested part of the gain into EIS, deferring the CGT liability.
Through careful planning and utilizing available tax reliefs, John significantly reduced his CGT liability on the sale of his second home. He successfully applied PRR, Lettings Relief, annual exemptions, and crystallized losses. Additionally, by considering pension contributions and potential ownership restructuring, John optimized his tax position further. These strategies highlight the importance of understanding and leveraging legal tax mitigation methods to manage property investments effectively.
Key Takeaway
Proper tax planning and professional advice are crucial in legally minimizing CGT liabilities on second homes in the UK. Utilizing reliefs such as PRR, Lettings Relief, and timing sales strategically can lead to substantial tax savings.
How a Tax Accountant Can Help You Legally Avoid Capital Gains Tax on Second Homes?
In the UK, owning a second home can lead to significant Capital Gains Tax (CGT) liabilities when you decide to sell. However, with the expertise of a tax accountant, you can navigate the complexities of tax laws and find legal ways to minimize or even avoid these liabilities. This article explores how a tax accountant can be instrumental in this process.
Understanding the Legal Framework
A tax accountant's first role is to ensure that you are fully aware of the current tax laws and rates. For instance, in the 2024-25 tax year, the CGT allowance is set at £6,000, and the rates vary between 18% and 24% for residential properties, depending on your income bracket. Understanding these nuances is crucial for effective tax planning, and a tax accountant can provide the most current and relevant information.
Strategic Sale Timing
The timing of the sale of your property can significantly affect your CGT liability. A tax accountant can analyze market trends and tax year changes to advise on the optimal time to sell. For example, selling before a further reduction in CGT allowance can maximize your tax-free gains.
Utilizing Reliefs and Exemptions
Various reliefs and exemptions can reduce CGT. A tax accountant can help you understand and apply for these, such as Private Residence Relief (PRR), which applies if the property was your main home. They can guide you on how to legitimately structure your property holdings to maximize such reliefs, including the possibility of nominating which of your properties is your main home for tax purposes.
Capital Losses Offset
If you have incurred capital losses, a tax accountant can help offset these against your gains. They can provide advice on how to report these losses to HMRC and use them to reduce your overall CGT liability.
Residence and Domicile Status
Your residence and domicile status can have a significant impact on your CGT liability. A tax accountant can assess your status and guide you on the implications for your CGT liability, potentially reducing your tax burden if you are not domiciled in the UK.
Gifting Assets and Inheritance Tax Planning
Transferring ownership of a property as a gift can sometimes be a tax-efficient way of managing CGT. However, this requires careful handling to avoid unintended consequences, such as Inheritance Tax liabilities. A tax accountant can advise on the best way to proceed with such transfers, considering all potential tax implications.
Investment in Tax-Efficient Vehicles
Tax accountants can also guide investments in tax-efficient vehicles like Enterprise Investment Schemes (EIS) or Seed Enterprise Investment Schemes (SEIS), which can offer CGT deferral or relief. These are complex investment vehicles, and a tax accountant's advice is crucial to understand their risks and benefits.
Record Keeping and Reporting
Accurate record-keeping and timely reporting are vital for CGT calculations. A tax accountant ensures that all necessary documentation, like purchase and improvement costs, is accurately recorded and reported to HMRC, minimizing the likelihood of disputes or penalties.
Representation in Disputes with HMRC
In case of any disputes or inquiries from HMRC regarding your CGT liabilities, having a tax accountant is invaluable. They can represent you, ensuring that your case is presented accurately and professionally, often leading to more favorable outcomes.
Continuous Tax Planning and Advice
Finally, a tax accountant offers ongoing advice and planning to adapt to changing tax laws and personal circumstances. Their expertise can guide long-term property and investment decisions, ensuring that your tax liabilities are minimized legally over time.
A tax accountant plays a critical role in helping you navigate the complexities of CGT on second homes in the UK. Through their expertise in the law, strategic planning, and detailed understanding of tax reliefs and exemptions, they can provide invaluable guidance on legally minimizing your tax liabilities. Whether it's through strategic timing of property sales, utilizing available reliefs, or planning for future changes in tax legislation, a tax accountant is a key ally in ensuring your property investments are as tax-efficient as possible.
20 Most Important FAQs about "How to Avoid Capital Gains Tax On Second Homes in The UK
1. Q: Can I reduce my capital gains tax by renting out my second home? A: Renting out your second home can impact your CGT liability. You may be eligible for lettings relief, which can significantly reduce your CGT, but specific conditions must be met, including shared occupancy with tenants.
2. Q: Does the length of ownership of a second home affect CGT? A: The length of ownership doesn't directly affect CGT. However, if you've used the home as your primary residence at any point, you could be eligible for Private Residence Relief for that period.
3. Q: Can I avoid CGT by reinvesting the profits from the sale? A: Reinvesting profits in another property does not exempt you from CGT. However, investing in certain tax-efficient investments like EIS or SEIS can offer deferral or relief on CGT.
4. Q: How does divorce or separation impact CGT on a second home? A: In the case of divorce or separation, CGT implications can vary. Transferring property between partners in the year of separation can often be done without immediate CGT implications, but seek professional advice for your specific situation.
5. Q: Can renovating my second home reduce my CGT liability? A: Yes, costs incurred on improvements (not repairs) can be deducted from the gain, reducing your CGT liability. Keep detailed records and receipts of these improvements.
6. Q: Does gifting a second home to a family member avoid CGT? A: Gifting a property is considered a disposal for CGT purposes. The recipient may have a lower tax liability, but you could still be liable for CGT on the gift's market value.
7. Q: How does the value of my second home affect CGT? A: The higher the gain from the sale of your second home (the difference between the selling price and the purchase price plus improvements), the higher the potential CGT liability.
8. Q: Are non-UK residents liable for CGT on a second home in the UK? A: Yes, non-UK residents are liable for CGT on the sale of UK residential properties, including second homes.
9. Q: Can I use my pension contributions to reduce CGT on a second home? A: Pension contributions can reduce your overall taxable income, potentially lowering your CGT rate if it brings you into a lower income tax band.
10. Q: What records should I keep to minimize CGT on a second home? A: Keep detailed records of the purchase price, costs of any improvements or renovations, periods of occupancy or rental, and any periods the property was your main residence.
11. Q: How does owning a second home abroad affect CGT in the UK? A: If you're a UK resident, global gains, including those from properties abroad, can be subject to CGT. However, foreign taxes paid might be creditable against the UK CGT.
12. Q: Can I use losses from other investments to offset CGT on my second home? A: Yes, you can offset capital losses from other investments against capital gains, including those from the sale of a second home, to reduce your overall CGT liability.
13. Q: How does changing the use of my second home, like converting it to a business, affect CGT? A: Changing the use of your property can affect its CGT treatment, particularly if you convert it to a business asset. This may open eligibility for different reliefs and exemptions.
14. Q: Is there a deadline for paying CGT after selling a second home? A: Yes, in the UK, CGT on residential property must be reported and paid within 60 days of completion of the sale.
15. Q: How does CGT apply if I inherit a second home? A: Inherited properties are assessed for CGT based on the gain in value from the date of inheritance to the date of sale, not the original purchase price.
16. Q: Can I avoid CGT by transferring my second home into a trust? A: Transferring a property into a trust is considered a disposal for CGT purposes. While it can be a part of estate planning, it doesn't necessarily avoid CGT.
17. Q: Does having a mortgage on my second home affect CGT? A: The existence of a mortgage does not directly affect your CGT liability. CGT is calculated based on the gain from the sale, not the amount of mortgage.
18. Q: Can I avoid CGT if I sell my second home at a loss? A: If you sell your second home at a loss, there is no CGT to pay. Moreover, you can use this loss to offset future capital gains.
19. Q: How is CGT calculated if I part-own a second home? A: If you part-own a second home, CGT is calculated based on your share of the gain from the sale.
20. Q: Are there any special CGT considerations for elderly or retired individuals? A: Elderly or retired individuals have the same CGT considerations as others. However, if they move into a care home, the final period exemption for their main home extends to 36 months for CGT purposes.