Is there really no Capital Gains Tax when I sell my home?

When you dispose of an asset, Capital Gains Tax is due on any gain you have made; this gain being the difference between the cost of the asset and the sale price along with some allowable deductions.

There are several reliefs that can be applied to Capital Gains Tax, the most generous being 'PPR' - Principal Private Residence Relief. This relief is available to those people selling their home. So whilst there is Capital Gains Tax when you sell your home, you often have a 100% relief.

This may not be the case for everyone and it is important to understand when and why. With HMRC having electronic data exchanges with many agencies, including the Land Registry, they know automatically when you sell a house and if you own more than one.

Do you own more than one home?

If you own two properties then this relief is only available to your elected 'main residence'. To qualify as your main residence you must have lived in your home and it must have been solely your home (i.e. there being no annexes or basement flats let out) plus you must not have had any significant periods of time away.

If you rent a part of your home (converted garage, basement flat, annexe) either as a furnished holiday let or as a rental property then this part of the property was not your home and the value of the gain on this area will be subject to capital gains tax.

What if you haven't always actually lived in the house?

There are periods of actual occupation for PPR and there are periods of 'deemed occupation' for PPR. The value of the PPR relief then becomes a percentage of total occupation (actual and deemed) vs non occupation. Actual occupation is simply when you physically live in the home full time.

Deemed occupation is a little more complicated and is defined as;

1. A period of up to 24 months when you purchase your new home because you are unable to sell your old home or need to carry out refurbishments.

2. Absence because you have full time employment outside of the UK.

3. Absence totalling not more than 4 years when the distance from your work prevents you from living at home, or your employer requires you to work away from home to do your job effectively.

4. Any absence for any reason, totalling not more than 3 years.

For absences to count as deemed occupation you must return to the property, unless under 2 or 3 you cannot.

The last 9 month period of ownership is always classified as deemed occupation.

Are you actually living in your home?

For actual occupation you must be genuinely living in your home, this can and has been something that HMRC have challenged in an investigation.

HMRC looks at the quality and permanence of occupation, considering factors such as whether you lived there day-to-day, moved in your personal belongings, used the address for council tax, utilities, bank/GP/DVLA records, and whether the property functioned as the centre of your domestic life. There is no fixed minimum time period that automatically qualifies, but short or token occupation (for example, moving in briefly mainly to obtain relief) may be challenged, whereas occupation that reflects a real home—supported by evidence of ordinary living arrangements—is more likely to qualify.

When to get advice

If you have had absence from your main residence, or have let part of it out at any time then getting advice on capital gains tax is advised. Oh, and don't forget the 60 day reporting rule for disposal of residential property where there is a gain to report and capital gains tax to pay!

If you need advice on whether you need to pay Capital Gains Tax, get in touch with us.