Newspaper article The Evening Standard (London, England)

Beware the CGT Monster

Newspaper article The Evening Standard (London, England)

Beware the CGT Monster

Article excerpt

Byline: LIZ HODGKINSON

If you're leaving London for the summer you could let out your home and pay for your break, but beware of taxes, says Liz Hodgkinson

IF your job takes you out of town or out of the country for six months or more, you may consider letting out your home while you are away. Apart from the usefulness of the rental income, it's far better for a home to be occupied than to stand empty for several months. Rapid dilapidation occurs when property is vacant, but worse, your empty home can become a magnet for squatters and burglars.

But what happens, tax-wise, with a rented-out home when you come to sell? If you have at some stage used your own home for profit, do you then become liable for the dreaded Capital Gains Tax? The good news from the horse's mouth, the Inland Revenue Enquiry Centre, is that CGT does not apply in such cases, so long as certain conditions are fulfilled.

"If your job takes you away from home and you decide to rent out your home for profit in the meantime, you are exempt from CGT for a total period of three years' absence," says an IR spokesman. "For longer periods, you may become liable, although there is also an exemption for the past three years of your ownership of the property.

"Nowadays, many homeowners have contracts or secondments that require them to be away from home from time to time. If they let their homes out in the meantime, they will be paying tax on the rental income anyway, so normally would not have to pay twice."

These CGT exemptions apply only if you do not buy another home to live in during your time away from your original home. Homeowners are allowed only one principal private residence for tax purposes, and further homes, even if not rented out, are always liable for CGT when sold.

Letting agents warn that when renting out your own home, you should not be tempted into an ad-hoc or open-ended arrangement with friends or family members to avoid paying tax. …

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