Private Residence Relief

March 16, 2022

Will I have to pay Capital Gains Tax when I sell my home?

IF YOU ARE CONSIDERING buying a new property, you may be wondering whether there will be any Capital Gains Tax to pay when you sell it.

The answer is, if the property is your only or main residence for all the time that you own it then no Capital Gains Tax will arise. This relief from Capital Gains Tax is called Private Residence Relief and provides an exemption from Capital Gains Tax on the sale of a home.

HOW DO YOU QUALIFY FOR PRIVATE RESIDENCE RELIEF?

  • You have to live in the property as your main home for all periods that you own it
  • You must not have been absent, other than for an allowed period of absence or because you’ve been living in jobrelated accommodation, during your period of ownership
  • The garden or grounds, including the buildings on them, are not greater than the permitted area
  • No part of your home has been used exclusively for business purposes during your period of ownership. This includes working from home using a room that is not exclusively used for business purposes
  • You must not rent out your home – creating a furnished holiday let, even for a short period, will mean that you do not receive Private Residence Relief MEET THE CONDITIONS If you meet all of these conditions, you will not be required to pay Capital Gains Tax on any gains made from the sale of your property. If you do not meet all of the conditions, you may still get partial relief under certain circumstances and you’ll need to complete the Capital Gains Tax summary pages of your tax return.

Even if you meet all of these conditions, you will not receive Private Residence Relief if:

  • You dispose of all or part of your garden after you’ve disposed of your home
  • You acquire a dwelling house and/or spend money on it in order to realise a gain on its disposal

CAPITAL GAINS TAX FOR NONRESIDENTS ON UK RESIDENTIAL PROPERTY

From 6 April 2015 if you sell (or dispose of) the whole or part of an interest in a UK residential property when non-resident, you must tell HM Revenue & Customs within 30 days of the date of conveyance. You may have to pay Capital Gains Tax on any gains you make.

IF YOU’VE MADE A LOSS ON THE DISPOSAL INSTEAD OF A GAIN

If you make a loss on the disposal of your home and you would have got Private Residence Relief if you had made a gain, your loss will not be an allowable loss and you will not be able to offset it against any gains you’ve made. If you would have received partial relief, part of your loss will not be allowable and that part should be calculated in the same way as you would have calculated the partial relief if you had made a gain.

WHO QUALIFIES FOR PRIVATE RESIDENCE RELIEF?

Any individual is entitled to the relief on any gain arising on the disposal of their only or main residence. This is provided that, in calculating the amount of the gain that would be a chargeable gain if the relief did not exist, no account would have to be taken of any Gift Hold-Over Relief obtained by any person for an earlier disposal. Special transitional rules may allow some Private Residence Relief to apply where Gift Hold-Over Relief is obtained for a transfer which was made before 10 December 2003. Relief under these transitional provisions must be claimed. Trustees of settled property and personal representatives may claim relief in some circumstances, as explained below. Companies are not entitled to relief.

You’re entitled to relief if you own the freehold of your home or if you’re a tenant owning a lease. You’re also entitled to relief if you jointly own the freehold or lease with someone else.

DEFINITION OF TERMS

To further understand the parameters of the Private Residence Relief conditions, here is a definition of the key terms used in this Private Residence Relief guide:

DWELLING/HOUSE

This may be a single building or detached house; it may be more than one building (such as a house with a detached garage); or it may form part of a building, such as a flat. Should your home include multiple structures, such as several outbuildings, any Private Residence Relief available may not extend to all buildings included.

Determining which buildings make up your dwelling is only relevant if the home has grounds or a garden larger than the area permitted.

Houseboats and fixed caravans are included in Private Residence Relief eligibility in the same way as houses and flats are. Even if your dwelling is located outside of the UK, you may still qualify for Private Residence Relief.

MAIN OR ONLY RESIDENCE

Should you reside in more than one dwelling, only one can be considered as your main residence at any one time for the purposes of Private Residence Relief. You can nominate your main residence for any period of time, but it must be made within two years of the date that you first take residence in any particular combination of dwellings.

“You’re entitled to relief if you own the freehold of your home or if you’re a tenant owning a lease. You’re also entitled to relief if you jointly own the freehold or lease with someone else.”

Whenever there is a change to the dwelling combination, a new two-year period must begin. Should you fail to make a nomination, the determination as to which is your main residence will be assessed upon the facts at hand.

PERIOD OF OWNERSHIP

Your period of dwelling ownership begins on the date that you first acquire the property, or on 31 March 1982, whichever is later. The ownership period ends when you dispose of it. The final 18 months of your ownership period always qualifies for Private Residence Relief, regardless of your use of the property during that time, so long as it has been your main or only residence at some point.

PERIOD OF ABSENCE

Some periods of absence will still qualify for relief. For example, if for a period of up to 12 months from the date of acquisition, you do not reside at the new dwelling due to the need to carry out refurbishments or because you are unable to sell your previous home, you can treat this period as if it has been your main or only residence. Under exceptional circumstances, a period of up to two years may be considered with the same leniency.

There are other conditions under which periods of absence may be treated as periods of normal residence, so long as during the time both before and after the absent period, you reside at the dwelling in question. The qualifying reasons for absence include:

  • Any absence for no more than three years in total, for whatever reason
  • Absences relating to employment in which all duties are conducted outside of the UK Or absences totalling no more than four years when either:
  • The distance to your place of employment prevents you from living there; or
  • Your employer requires that you work away in order to carry out your job efficiently

GROUNDS AND GARDENS

If you dispose of land that is included in your dwelling as grounds and/or gardens, you are entitled to relief so long as the area falls within the permitted size. The grounds or gardens include any buildings that stand upon them, so any building that is separate to your dwelling can still qualify for Private Residence Relief if it stands within a permitted area of grounds or garden.

PERMITTED AREA

So long as your grounds or gardens cover no more than half a hectare (a little over one acre), you are entitled to Private Residence Relief for all of it.

If your grounds or gardens exceed this area size, you may not be entitled to Private Residence Relief for all of it. The area for which you may still be entitled to relief is known as the ‘permitted area’. This consists of the area of land that is considered to be required to enable a reasonable enjoyment of the dwelling as a primary residence.

In this case, the character and size of your property will be taken into account for assessment. You must enter the details of the property onto the Capital Gains Tax summary pages, along with details of the disposal and the gain, and any relevant information as to why you believe that all or part of the grounds and property should be exempt from paying Capital Gains Tax.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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