Capital Gains Tax on Main Residence

Capital Gains Tax on Main Residence

When you sell your house (‘main house’ or ‘private house’), you do not have to pay CGT on the income. This is because you lived there for the whole ownership period, as the gain is tax-free.  The relief is subject to the fulfilment of certain conditions.  Here, we discuss the rules and the preferential care for those who are forced to operate away from home, such as armed forces leaders. You need to pay capital gains tax on the main residence from the income you make when you sell a property or main residence in the UK.


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Capital Gains Tax and Your Principal Private Residence

The sale of an individual’s home is normally exempt from CGT. with neither a taxable gain nor a taxable loss arising. This is the case where it has been the individual’s only or main residence throughout the period it has owned, or if owned before March 31, 1982, then the period since then.


Taxable or Partly Taxable Situations

However, there are times when a taxable gain or loss can arise. For example, the profit arising from disposal may be taxable or partly taxable in any of the following situations:

Case 1:

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 on a primary residence, the property chosen must be a residence of the individual. It must be lived in as a home for some part of the year. Although it does not have to be the main residence, it is a matter of fact as to which property is the main residence. It is possible to change the election at any time after it is made. It can be backdated for a period of up to 2 years to the date when the second property started to be used as a residence.

Case 2:

The property has been let out, whether or not. There is no problem with a lodger if they live as part of the family and the individual still occupies the property but other than that. The part of the gain apportioned to the letting period is taxable but reduced by the lower of

    • £40,000 and
    • an amount equal to the exempt gain

Case 3:

There has been business use of the property. But, entrepreneurs’ relief may be available on this proportion of the gain and it also doesn’t apply if no part of the residence has used only for business purposes, so it’s possible that storing your golf clubs in your office may do the trick!

Case 4:

The property was 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 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. Also, 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 a Capital Gain.

Case 5:

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 is more than would be needed to occupy and enjoy the property based on current living requirements, not the need for land as existed when the property was built.

Case 6:

The garden (whatever the size) is sold after the residence has 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 taxable. However for some periods of absence are not chargeable, with only the excess of following periods being chargeable.

  • The last 18 months of ownership. While 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 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 (2 years) treated as it is a period of the house.
  • Up to 4 years where the duties of a United Kingdom employment need the individual to work elsewhere. While it’s the main house 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 house at some time before and after unless prevented from doing so by the work.
  • Periods of absence before 31 March 1982 ignored in calculating the chargeable gain.
  • When there is job-related accommodation related to employment such as minister of religion or public house tenant. You can buy property while working and living in that job. The related property, to be 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 was owned on April 5, 1988, and 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

The CGT treatment of the sale of the family home can be complex, and planning in advance is always better. Let our accountants in London make things easier to understand for you. We’re friendly, proactive and young. In addition, we keep up with all the latest developments in your business to give you a competitive edge.


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