An at a glance freeview guide to Capital Gains Tax (CGT) relief on the disposal of your own home.

At a glance

If you make a profit (a 'gain') when you sell your own home, that gain is tax free if you can meet all the conditions to claim CGT private residence relief (PRR).

This relief is very straightforward: provided that you only own one home at a time.

In order to claim PRR:

  • You must own the freehold or leasehold of the property.

It must have been:

  • Occupied as a dwelling: i.e.fully habitable as a home.
  • Occupied as your only or main private residence.

The relief does not apply to commercial property.

The relief covers:

  • The building and a permitted area of up to 0.5 of a hectare (1.25 acres) of gardens and grounds including outbuildings.
  • The area may be extended in very, very exceptional cases, where larger grounds are in keeping with the property.

Permitted absenses

  • Provided that you have lived in the property as your home certain absences are permitted, for example, you can live in another home or work elsewhere abroad.
  • When such an absense is permitted within the rules you are treated as if you lived in the property as your main residence throughout these periods.
  • The last 18 months of ownership is covered by PRR if you meet the main conditions, even if you no longer live there.

If you own two or more homes

  • You need to make an election to HM Revenue & Customs (HMRC) if you have two homes which qualify for PRR in order to say which home is your main private residence.
  • It is possible to “flip” homes to avoid CGT by making elections at strategic times.

Restrictions on the gain

  • If the property has been jointly owned, let or in mixed business use a proportion of the gain may be chargeable to CGT.
  • If all or part of the property is used exclusively for commercial use (as a business), e.g. as an office, surgery, workshop, hotel etc. relief is restricted in part and an apportionment is made: your gain is usually time apportioned and the period for which it was used commercially is not covered by the relief.

  • If the home was been let a further relief: CGT letting relief can be claimed provided that the property was occupied as an only or main residence at some time during ownership.

Restrictions:

No relief is given if:

  • A dwelling is acquired wholly or partly for the purpose of realising a gain. e.g you are a property developer.
  • All or part of a house is used exclusively for the purposes of a business. If part of a house is used exclusively for the purposes of a business, 

For gains accruing after 5 April 2015, no PRR is available in respect of:

  • A non-UK resident if not present in their UK home for 90 days in a tax year.
  • A UK-resident if claiming relief for an overseas home and is not present in that home for 90 days in a tax year.

There are special rules for married couples

  • Married couples and civil partners are treated as if they are just one individual; they are only entitled to designate one property at a time as a private residence. 
  • Transfers of residences between married couples and civil partnerships have special rules which effectively back-date periods of ownership. Used carefully these may create useful tax planning opportunities.
  • There are special rules on divorce which may extend PRR where a property is held in trust, subject to a court order.

More information

Subscriber guide to PRR 
This covers the detailed rules and reviews latest case law on this ever changing area of tax. 

What's new?

What's new in legislation?

It is proposed that from 6 April 2020:

  • Lettings relief will be restricted and will only be available for periods where the owner is in shared occupancy with the tenant.
  • The final period exemption will be reduced from 18 months to 9 months. It will remain 36 months for those cases that currently qualify for the extended period.

From 6 July 2016:

  • If PRR is denied, for example you are a property developer, the Profits from dealing in or developing UK land rules tax effect and your profit is taxed the profits of a trade. From 6 July 2016, this applies even when you are non-UK resident.

From 6 April 2016:

  • The CGT rates were reduced to 10% and 20% however, this measure does not apply to gains accruing on the disposal of interests in residential properties, including properties that qualify for private residence relief.
  • Any chargeable gain on disposal of a residential property which remains after PRR has been claimed will be taxed at 18% and 28%. E.g. a property that partly qualifies for PRR and then is say let after owner occupation, any gain not covered by CGT relief such as PRR or letting relief is taxable at the 18% and 28% higher rates.

From 6 April 2015: 

  • Non-UK residents are subject to CGT on gains accruing from 6 April 2015 on the disposal of UK situated residential property.
  • A non-UK resident will only be able to make a PRR election if they can show that they are present in their UK home for 90 midnights, or that they were UK resident in the tax year.
  • UK-residents are unable to elect to claim PRR on foreign property unless they can show that they are present in the foreign property for 90 midnights in the tax year.
  • Both of these measures should be considered in tandem with the Statutory Residence Test.
  • See CGT: non-residents and UK residential property.

From 6 April 2014:

  • The exempt final period of ownership, in which a property which formerly qualified as a main residence is treated as if it is owner-occupied, is reduced from 36 months to 18 months. The 36 month rule remains available for disposals by disabled persons (or spouse thereof) or by persons who have moved into a care home as a long-term resident (or spouse thereof).

Tax Tips

Private Residence relief claims (or the lack of them) are regularly investigated by HM Revenue & Customs (HMRC).

The rules for this tax relief may become extremely complicated if you are:

  • Frequently buying and selling property.
  • Making a business of buying and selling property (developing property for a profit).
  • Purchased a residence that was unhabitable.
  • Lived in property for a very short time.
  • Have let or sub-letted your home.
  • Have used all or part of your home as a business.
  • Jointly own the property.
  • Move into a care home.

You need to review the conditions for the relief and if any part of your gain on disposal is not covered by the relief notify HMRC of your 'charegability to tax'. You will then be asked to complete a tax return.

Tax Tips: elections and evidence

  • If you own two or more properties and fail to make an election to nominate one property as a main residence HMRC may decide the matter for you, based on the facts of the case.
  • If you make a valid main residence election, HMRC cannot then decide the matter for you.
  • A property must be a "residence" in order to make a residence election. 
  • If you own or occupy a single property no election is possible.
  • The onus is on you to prove that you intended to make the property your main residence and then provide evidence to show that it was in fact your main residence.
  • Before the tribunal it is essential to obtain evidence of occupation and if possible bring in a reliable third party witness.

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