Question: I live in London with my wife and children but we are buying a holiday house in Cornwall. The Cornish property is on the water and is likely to increase more in value than our home.
© Merrily Harpur
A friend tells me that in view of the emergency Budget on June 22, I must consider which property will be my main residence. Can you advise?
Answer: If you are buying the Cornish property and do not intend it to be your principal private dwelling, when you dispose of it at some stage in the future there may be a potential liability for Capital Gains Tax (CGT).
However, currently there is an exemption known as the principal private residence exemption, which means that your principal private residence is exempt from CGT.
To qualify for the exemption you must live in the property throughout your ownership and use it as your only or main residence, and there must be some continuity and permanence. As you are married, you and your wife can have only one principal private residence exemption, but if you have more than one home you can elect which of your properties is to benefit from the exemption.
Currently, you have two years from the date of the purchase of the second property to make this election. An election can be revoked. Accordingly I suggest that you elect to have your new holiday home as your principal private residence, as it appears that it will increase in value more than your London home.
However, you need to be aware that HMRC may query the use of the Cornish property as your "home".
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If you have a question for Fiona McNulty, email email@example.com, or write to: Legal Solutions, Homes & Property, Evening Standard, 2 Derry Street, London W8 5EE. We regret that questions cannot be answered individually but we will try to feature them here. Fiona is a partner in the property team at Thring Townsend Lee & Pembertons Solicitors (ttuk.com).