When your home rises in value you can happily sell it and enjoy the benefit of any profit you’ve made without paying capital gains tax on it.
However, this does not apply when you sell a property that you’ve bought as an investment or as a holiday home. In this case tax can be due on any gain that you make at a rate of 28%.
Many people selling their business plan well in advance to make sure they claim all the tax reliefs to which they are entitled and the same principle can be applied to a property. If the property can be let to the public and meets certain conditions to qualify as a ‘furnished holiday let’ it would be treated as a business and could qualify for a relief which would reduce the tax rate to 10%.
The label ‘furnished holiday let’ is misleading, as the property does not have to be what is traditionally thought of as a holiday home by the sea, it refers rather to the way in which it is let. The conditions are that the property is available to be let for at least 210 days in the year, it is actually let for at least 105 days in the year and it is let for short periods which are defined as less than 31 consecutive days to the same person.
In the past it has seemed like a lot of work to achieve and track short term letting. However, the popularity of sites such as Airbnb it may be easier to meet these conditions. Planning ahead of an intended sale is the way to give yourself the best chance of achieving a tax efficient gain.
If you are thinking of trading up and buying a replacement property there is a further relief which could defer part of the gain and again reduce the tax payable. The amount which can be deferred is limited to the part of the gain which applies to when the property qualified as a furnished holiday let but a combination of both reliefs can be valuable.