25 Jan 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 primary residence throughout the period that is owned. 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 treated as one for these purposes) has two or more residences
- In these circumstances, the individual can elect within two years of acquiring the second property. As to which property is to be treated as the only or primary residence and therefore exempt from CGT purposes. 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 principal residence as a question of fact as to which property is the primary 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, whether wholly or partly
- 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 role 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, entrepreneurs’ relief may be available on this proportion of the gain. 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 it is bought for the purposes of residence and not for creating again. There is no fixed time period during which the house 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 genuine 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 more extensive 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 demand 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, f some periods of absence are not chargeable, with only the excess of following periods being chargeable.
- The last three years of ownership as long as the property was the only or primary 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 primary 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 two years) is treated as it is were 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 primary 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 primary 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 did 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 5 April 1988 properties
Where the property is owned on 5 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 complicated. Planning in advance can significantly assist the outcome. Please contact us for further advice.