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CGT and Your Principal Private Residence
The sale of an individual's home is normally exempt from CGT, with neither a taxable gain nor loss arising. This is certainly the case where it has been the individual's only or main residence throughout the period it has been owned, or if owned prior to 31 March 1982, then the period since then.
However there are times when a taxable gain or loss can arise. For example the profit arising on disposal may be taxable or partly taxable in any of the following situations...
- Where the individual (both spouses/civil partners who are treated as one for these purposes) has two or more residences. In these circumstances the individual can elect within 2 years of acquiring the second property as to which property is to be treated as the only or main residence and therefore exempt from CGT purposes. The property chosen must be a residence of the individual, i.e. it must be lived in as a home for some part of the year, although it does not have to be the main residence as a question of fact as to which property is the main residence. It is possible to change the election at any time after it is made, and can be back-dated for a period of up to 2 years to the date when the second property started to be used as a residence.
The property has been let out. For disposals on or after 6 April 2020, letting relief is only available where part of the residence is occupied as an only or main residence by the owner and another part is let out. Before 6 April 2020, the relief was also available if the whole property was let out. There is no problem with a lodger if they live as part of the family and individual still occupies the property but other than that, the part of the gain apportioned to the letting period is taxable but is reduced by the lower of...
- £40,000 and
- an amount equal to the exempt gain
- There has been business use of the property. However, business asset disposal relief (BADR) (formerly entrepreneurs' relief) may be available on this proportion of the gain and it also doesn't apply if no part of the residence has been used exclusively for business purposes, so it's possible that storing your golf clubs in your office may do the trick!
- The property is bought for a short time, lived in and then sold in order to make an exempt gain. To take advantage of the exemption for a private home that the property is bought for the purposes of residence and not for making a gain. There is no fixed time period during which the home should be occupied, as it is the intention that counts. In addition if properties are bought and sold on a regular basis there is a very real danger HMRC will want to treat the repeated profits as income from a trade, subject to income tax and national insurance and not just a capital gain.
- The garden is larger than half a hectare(approx. 1.25 acres) and is out of keeping with the particular size and character of the property. In other words it more than would be needed to occupy and enjoy the property based on current living requirements, not the requirement for land as existed when the property was built.
- The garden (whatever the size) is sold after the residence has been sold, this would then be taxable.
Periods of absence. When the property is not occupied as the taxpayer's main home any gain that arises in those periods of absences is potentially taxable. However for some periods of absence are not chargeable, with only the excess of following periods being chargeable...
- The last 9 months of ownership (18 months for disposals prior to 6 April 2020) as long as the property was the only or main residence at some point prior to that;
- Up to 3 years for any reason - such periods do not have to run continually as long as it was the only or main residence at some time before and after;
- Where a previous residence is being sold, or the property is being prepared for occupation, up to a year (occasionally 2 years) is treated as it is a period of residence;
- Up to 4 years where the duties of a United Kingdom employment require the individual to work elsewhere, again as long as it was the only or main residence at some time before and after unless prevented from doing so by the work;
- Any time when employed abroad as long as it was the only or main residence at some time before and after unless prevented from doing so by the work;
- Periods of absence prior to 31 March 1982 are ignored in calculating the chargeable gain;
- Where there is job-related accommodation related to employment such as minister of religion or public house tenant, you can purchase a property while working and living in that job related property, for the purpose of being your future home but not live there and that property will be exempt from CGT, even if you never live there, so long as the intention to do so was there until sold.
Dependent Relative Relief for pre 5th April 1988 properties. Where the property is owned on 5th April 1988 that has been continuously occupied rent free by a dependent relative since then, the property becomes exempt from CGT. This exemption ceases if there is a change of dependent relative occupier.
How We Can Help You
CGT treatment of the sale of the family home can be complex and planning in advance can greatly assist the outcome. Please contact us for further advice.