The private residence relief allows you to sell your home without paying any capital gains tax (CGT) on the profit you make on the sale.
If only life was that simple. Unfortunately, there are occasions when CGT may be payable. For example, if part of your home has been used exclusively for your business a proportion of any gain would be taxable based on the percentage of your home used for your business. Note the use of the word “exclusively” here. If you have a home office that doubles as your study or a spare bedroom there is no exclusivity and, in most cases, there would be no CGT to pay.
Complications also occur if you are absent from your home for extended periods, basically, the extended absences may mean that part of gains on sale would be taxable. Notable exceptions to this are:
- If for 12 months you do not occupy a new home when you acquire it, because you are not able to sell your old home, or you need to carry out refurbishment, you can treat up to the first 12 months as if the house had been your only or main residence in that period. In exceptional circumstances, HMRC may allow you to treat a longer period (up to a total of 2 years) in the same way. The same treatment applies when you buy land to build a house.
- If you are absent, live elsewhere due to the demands of your job, this should not affect your eligibility to claim private residence relief.
Under present tax rules the final 18 months of you home ownership always qualifies for the private residence CGT relief even if you are not living in the house when it is sold. This is a useful concession if there are delays between you moving out – to take up residence in a new home – and the old home sale completes at a later date.
Many other factors may also affect the tax-free status of your home including letting your home for extended periods or developing part of your garden for sale.
If you need confirmation that your future home sale will be tax-free, please call and make an appointment. We will need a potted history of your residence in the house with full details of any absences for whatever reason.