In general, there is no CGT payable on a property disposal which has been used as the main family residence. An investment property which has never been used as a private residence will not qualify. This relief from CGT is commonly known as private residence relief.
Taxpayers are usually entitled to full relief from CGT where all the following conditions are met:
- The family home has been the taxpayers only or main residence throughout the period of ownership.
- The taxpayer has not let part of the house out – this does not include having a lodger.
- No part of the family home has been used exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use).
- The garden or grounds including the buildings on them are not greater than 5,000 square metres (just over an acre) in total.
- The property was not purchased just to make a gain.
If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.
Married couples and civil partners can only count one property as their main home at any one time.
There is usually no Capital Gains Tax (CGT) to be paid when you sell your main family residence (referred to by HMRC as private residence relief) that has been used as your only or main residence.
However, there are important points to consider that can affect your entitlement to full CGT relief. These include the following:
There are special rules for business use of a private residence. Homeowners 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 issues that homeowners should be aware. An individual, married couple or civil partnership can only benefit from CGT relief on one property. 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 and these may need to be considered.
Homeowners that lived in their home at the same time as tenants, may qualify for Letting Relief on gains they make when they sell the property. Letting Relief does not cover any proportion of the chargeable gain made while the home is empty.
Absences from the family home
If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.