Private residence relief
There is usually no Capital Gains Tax (CGT) to be paid when you sell your main family residence (referred to by HMRC as private residence relief) that has been used as your only or main residence.
However, there are important points to consider that can affect your entitlement to full CGT relief. These include the following:
There are special rules for business use of a private residence. Homeowners who work from home do not suffer any restriction to the relief where business use of the home is not related to a specific area e.g., where a home office also doubles as a spare bedroom. Where part of the home is used exclusively for business purposes then part of the proceeds from the sale of the house will relate to a chargeable rather than exempt use.
It is increasingly common for taxpayers to own more than one home, and there are issues that homeowners should be aware. An individual, married couple or civil partnership can only benefit from CGT relief on one property. It is possible to choose which property benefits from a CGT exemption but there are special rules which determine the timing and frequency of changing an election and these may need to be considered.
Homeowners that lived in their home at the same time as tenants, may qualify for Letting Relief on gains they make when they sell the property. Letting Relief does not cover any proportion of the chargeable gain made while the home is empty.
Absences from the family home
If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.
One of the most often used and valuable of the Capital Gains Tax (CGT) exemptions covers the sale of the family home. CGT is a tax on the profit made from selling certain assets such as property, shares or other investment e.g. antiques and fine art. There are a number of exemptions available which can reduce or remove a taxpayer’s liability to CGT.
In general there is no CGT on the sale of a property which has been used as the main family residence. An investment property which has never been used will not qualify. This relief from CGT is commonly known as private residence relief.
In general, taxpayers are entitled to full relief from CGT when the following
conditions are met:
- The family home has been the taxpayer’s only or main residence throughout the period of ownership.
- The taxpayer has not been absent from the home other than for an allowed period of absence or because they have been living in job-related accommodation, during the period of ownership.
- The garden or grounds including the buildings on them are not greater than the permitted area.
- No part of the family home has been used exclusively for business purposes.
It is increasingly common for taxpayers to own more than one home and there are a number of issues that these home owners should be aware of. An individual, married couple or civil partnership can only benefit from CGT on one property at a time. However, it is possible to choose which property benefits from a CGT exemption when sold by making an election. There are special rules which determine the timing and frequency of changing an election which need to be considered.
As stated above, there is usually an exemption from CGT on the sale of a property which has been used as the main family residence. However, the sale of a second home such as a holiday home or a property that was bought as an investment and rented out either in the UK or overseas may be subject to CGT.
Prior to 6 April 2014, if a property has been occupied at any time as an individual’s private residence, the last three years of ownership were disregarded for CGT purposes – even if the individual was not living in the property when it was sold. It was announced as part of the Autumn Statement 2013 measures that from 6 April 2014 the final period of exemption would be reduced to 18 months.