Watch out if you have ever sold a second home in the UK or a holiday home abroad and didn't declare any capital gains from the sale to HM Revenue & Customs (HMRC). Accountancy firm Baker Tilly is warning that HMRC has access to a wide range of data on property sales and is targeting people they believe are liable to tax.
However, Baker Tilly says there are ways to reduce the liability to capital gains tax on a second home that has been sold. These include deducting:
■ expenditure on enhancing the property;
■ the original purchase costs (including stamp duty land tax paid); and
■ an uplifted base cost if the property was acquired before March 1982.
Gary Heynes, private client group partner at Baker Tilly, says: "If there is a potential charge to tax on a sale, a review of the gain may well be worthwhile as it may not be as high as HMRC believes.
"Anyone returning from holiday and thinking about buying a second home now, either in the UK or abroad, should consider the tax implications of ownership and later sale at the outset. It is even possible that a second home could qualify for a full exemption from capital gains tax even where it may be let out for a period during the time it is owned."
In order to maximise reliefs in the future, Mr Heynes says it may be necessary to:
■ make an election of the holiday home as your main residence for relief - this has to be done within two years of the date of purchase;
■ ensure that the rules for holiday lettings will be met to achieve a lower rate of capital gains tax; and
■ consider overseas taxes that might apply to foreign properties.
"It is usually easier to plan for future tax mitigation than to deal with a past liability," he adds.
