As a general rule, there should be no capital gains tax (CGT) to be paid on a property which has been used solely as the main family residence (referred to by HMRC as one’s principal private residence). Conversely, an investment property which has never been used as a private residence will not qualify for relief. However, there is a significant amount of HMRC guidance and case law in this area which help highlight the somewhat ambiguous nature of the rules. For example, your house could also include one or more outbuildings which may or may not benefit from CGT relief.
Some of the important points to consider include the following:
There are special rules for business use of a private residence. Home owners 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 a number of issues that home owners should be aware of. An individual, married couple or civil partnership can only benefit from CGT relief on one property at a time. 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 which need to be considered.
Where all or part of the home has been rented out at ant time the entitlement to relief may be affected. Home owners that let all or part of their house may not benefit from the full private residence relief but can benefit from letting relief. This relief is not available on a ‘buy to let’ property in which a taxpayer never lived.
Absences from the family home
As always, the devil will be in the detail. If you have lived continuously in your home, have never rented out to third parties, or elected for a second home to be your private residence, then you should be able to sell without any CGT complications.
If you are concerned that CGT may apply to a disposal please call to discuss. We would be delighted to help.