Do I need to pay capital gains tax when I sell my home?

13 April 2020

It is a common misconception that you don’t need to worry about capital gains tax when you sell your home. This is only true if your home has been your main residence throughout the entire period of ownership, or the entire period of ownership ignoring the last nine months (for disposals from 6 April 2020).

If you have not used your (whole) home as a residence for any period, you will need to consider in more detail whether you have any capital gains tax obligations when you sell the home, for example:

  • you have been absent from your home for a period, or
  • you have let out part or all of your home, or
  • you have used part of your home for business purposes.

The rules on how much ‘private residence relief’ you can get you sell a home which hasn’t been used as your main residence throughout the entire period of ownership can be very complicated.

Broadly speaking, you start by calculating the profit, or gain, you make on selling the property. You then need to work out the amount of the gain which relates to the different periods of ownership. For this, the gain is deemed to accrue evenly irrespective of how the market value of the property might have changed throughout the period of ownership. For example, if I purchased a property for £200,000 and I sell it for £300,000 ten years later, then the gain attributable to each year of ownership will be £10,000.

You then need to consider which periods qualify for relief. Any period where you occupy the property as a main residence will qualify. You can also qualify for certain periods of absence – for example, if you are prevented from living in the property because of your place of work – but certain conditions must be met. The final nine months of ownership will always qualify (note that this ‘final period exemption’ was 18 months for disposals before 6 April 2020).

If you have let out the property, this can complicate matters. For disposals prior to 6 April 2020, it was possible to get ‘letting relief’ even for periods where you let out the whole property. However, for disposals on or after 6 April 2020, this relief is now restricted to periods where the owner occupied the property with the tenant – even if that period occurred prior to 6 April 2020.

The gain attributable to any period which does not qualify for relief is potentially chargeable to capital gains tax.

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If you have let out your main home, then it may be the case that you are able to save significant capital gains tax by moving back into the property prior to sale. This is because you can get relief for a period of absence lasting up to three years where you are absent for any reason, but you must occupy the property as a main residence both before and after the period.

There are additional rules to consider if you and your spouse or civil partner have, or have had, more than one property between you – or if you sell the property while non-resident in the UK. You should always seek advice in this situation.

New rules from 6 April 2020 mean that UK residents must calculate, report and pay any capital gains tax due on the sale of UK residential property within 30 days of completion. Penalties can apply if you are late! HendersonTax can help you with this reporting.

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