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Capital Gains Tax and the Second Home

Capital Gains Tax is not payable on any gain your make on your only or main residence.

However, what happens when you have two homes, perhaps one in town and one in the country?

The first answer is that only one can count as your main residence for the purposes of the CGT exemption. For these purposes husband and wife are counted as one. However, within two years of acquiring the second property you are allowed to make an election as to which one you wish to treat as your main residence.

If you forget to make the election and many people do or simply don't know about it, it becomes a question of fact as to which property is the main residence. This can be very costly as you may then find that is the property with the largest gain that is taxed. You can make the election as long as the second property is a residence of yours, it doesn't have to be the main residence based on the facts. It's also possible to change the election and the change will then apply for the 2 years prior to the election.

It's also worth remembering that the last 3 years of ownership of a property will be count as a non-taxable part of a gain as long as the property has been the main residence at some stage. For this reason, it is often worthwhile to ensure both properties are treated as the main residence at some stage.

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