How Capital Gains Tax Affects Your Home Loan

As the country sees an increase in the ownership of primary residences and second homes, there has been an increase in huge payments people experience from being taxed on their property. If you want to make sure all the money spent on your property is utilized, there are certain ways to keep yourself from experiencing an abundance of liability.

Principal, Private Residence

Your main home–or your principal, private residence–tends to be exempt of capital gains tax, or CGT, and have higher rates among other properties. If you are not married, both you and your partner are able to own separate principal, private residences; however, because you are married, you can only file your properties as joint principal, private residences.

You can cut your total capital gains costs if you plan on living in the second property for a specific amount of time. And if your property counts as the main residence, it is exempt from taxes from the time it was considered the main residence as well as the previous 36 months it was owned by you. This means you can be exempt from capital gains tax from the time you claim the property as your main residence.

Second Homes

After you have bought a second residence, the owner of the property has two years to determine which of their properties is their principal residence. While you do not have to actually be living in the residence when you decide, you must make your decision within two years. From that point, you then have to prove you live in the house; otherwise, you will be charged capital gains tax.

However, most people pay no attention to this two year deliberation period. If you have neglected this tax rule, you can make up for it by the purchase of a third party, which would add more time to you election period. Or you can choose the second house for only a short period of time.

Claiming Your Decision

The actual decision of claiming one house as your principal residence involves you transferring several postal and bank details to prove you are the resident and owner of the property who plans on living there for quite some time. If you move into your second property, your initial home will be subject to capital gains tax again, but that will not be much of a problem if you plan to move back into your initial residence later.

Renting Your Main Residence

One of the benefits to renting out your main residence while you are not living in there is that you can make a claim on nearly 40,000 rand worth of letting relief. If you have a partial share in the property, you can qualify for almost 80,000 rand total between you and your partner. Be advised that you can only claim a certain amount depending upon how much property is included in your principal, private residence as well as how many partners are included in the ownership of this property.

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