Paying Capital Gains Tax

Whenever you sell or dispose of (lease, exchange or give away) property in the UK other than your principal home you will be required to pay Capital Gains Tax (CGT). However, if a property was acquired before 31st March 1982, then no capital gains tax is usually payable.

If you have two or more homes in the UK, living part of the year in one and part in another, you can nominate which property is your principal residence for CGT purposes - but you must live in it some of the time. It's best to choose the one on which you think you will make the largest profit as your main home.

You must inform HM Revenue and Customs of your choice of principal home within two years of buying a second home, otherwise they may decide which property is your main home. However, you can change your mind at any time afterwards.

When you sell a second home acquired after 31st March 1982 and make a gain that's above your annual CGT allowance (£9,200 in 2007/2008) you're liable for CGT. This is payable at your highest rate of income tax, although you can deduct expenses incurred during the purchase and sale (including legal fees and mortgage arrangement costs), plus the cost of improvements and maintenance during the period of ownership.

If you're married, you can share ownership with your spouse and you both qualify for the annual CGT allowance. If you pay tax at the higher rate and your spouse is a basic rate taxpayer, it would make sense for them to own the property.

For more information, see the HM Revenue and Customs website http://www.hmrc.gov.uk or contact your local tax office for advice on your particular circumstances.

HMRC recommends that you keep the following information and documents:

* any documentation that describes properties you acquired but did not buy yourself: for example, a gift or an inheritance

* contracts for the purchase or sale, lease or exchange of the property

* copies of any valuations taken into account in your calculation of gains or losses

* bills, invoices or other evidence of payment records such as bank statements and cheque stubs for costs you claim for the purchase, improvement or sale of the property

* details of any property you have given away or put into a trust