Selling Your Main Residence and Capital Gains Tax

An update from DSW Tax Consultant Simon Denye

If you make a financial gain from selling your home, it is NORMALLY exempt from capital gains tax
(CGT) because of private residence relief (PRR).

However, this is not necessarily the case if you have not lived at the property throughout the period of ownership.  You have to look at the total period of ownership and decide which periods are taxable and which are not.

One current feature of PRR is that the last 18 months of ownership are always CGT free, regardless of whether you are living in the property or not. You could therefore move into a new home before selling your old one without losing any PRR.

The Chancellors 2018 Budget however included two important changes to the PRR rules – these are shown below with the potential impact

  • The 2018 Budget reduces PRR for the final period of ownership by half, down to nine months instead of 18. This will come into effect from April 2020. If you buy a new home, move out and your original property does not sell within nine months, you could therefore face a CGT bill when you finally do find a buyer.
  • Currently, if you have let your home (which at some time must have been your PRR) there is potentially extra relief which can reduce any capital gain you make from selling your home by up to a maximum of £40,000 (per individual). The Chancellor has decided that this “letting relief” is to be withdrawn from April 2020 unless you occupy part of your home or share it while letting it.
  • If you’ve occupied a house as your main residence for a while, but you’ve also lived somewhere else, the Budget raises the chance of a CGT bill. In future when you sell your home you’ll need to consider the CGT position if you’ve been absent from your home for one or more extended periods during your ownership. Some absences are ignored but this might only apply if you re-occupy your home after the absence.
  • In an obvious attack on landlords, the Chancellor also confirmed that from April 2020, anyone who makes a capital gain from selling residential property which is not covered by an exemption or relief will have to declare and pay an estimate of the CGT within the following 30 days.

Special rules currently allow PRR for the final 36 months of ownership if you’re in, or moving into, a care home or have a disability. This won’t change as a result of the Budget.

Capital Gains Tax Exemption

Your annual CGT exemption, £12,000 from 6 April 2019 still exists if you haven’t used it against other gains and therefore reduces the taxable amount owed. If you own the property that is subject to PRR in joint names, you can also use both your annual exemptions to reduce the tax further.

Point to take away

The sale of your main residence is only CGT if you have lived at the property throughout period of ownership. Care needs to be taken where there are periods of letting or the property is unoccupied for any reason.

Capital Gains Tax and Selling Your Home