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Second home alert

If you have recently sold a second home and have failed to declare this, be aware that HMRC may be on your trail.

It is not clear where the information is being obtained, possibly from the Land Registry or Stamp Duty Land Tax returns, but it is clear that HMRC are starting to work backwards to cross reference property ownership records with tax records they hold for individual tax payers.

This may seem like an unfair intrusion, but is actually a pretty logical step. Information concerning property ownership has been publicly available for a number of years, so there is no reason to suggest that HMRC should not make use of it themselves.

If you have sold a second home, there could be legitimate reasons why you may not have a capital gains tax liability. For example, if you have not made a profit, or if the property is jointly owned and your share of the profit is below the annual exempt amount (currently £10,900 for all disposals in the tax year), then there may be nothing to pay. A further significant factor affecting your potential tax liability is whether you have lived in the property at any time during the period you owned it.

However, even in these cases, there is still a requirement to declare the fact that a disposal of a "chargeable asset" has taken place, even if no tax is due.

In addition to a potential tax liability, there is also the issue of penalties. The penalty regime now in place means that if a failure to declare was discovered by HMRC and there was a deliberate effort to avoid making a declaration and this fact was concealed from them, they have the power to charge a penalty of 100% of the tax due, in other words, doubling the total liability. Different levels of penalty apply depending on HMRC's view of these three factors, but the minimum penalty is usually 10%.

It is therefore important to remember that if you are in a situation where you have sold a second property and you have not declared it, the financial consequences could be significantly greater than if you declared it properly in the first place. 

It goes without saying that if you are not sure, you should seek professional advice.