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Private residence relief and coming changes

Most of us know that, when we sell the home we live in, we don’t have to pay capital gains tax on any increase in price we’ve enjoyed during the time of our ownership. This exemption is called the “private residence relief”. For civil partners and married couples, only one residence will be considered by HRMC as qualifying as your primary residence.

If you bought a property with the sole aim of making a financial gain, private residence relief does not apply and you will have to pay capital gains tax. Likewise, if you have let any part of your property out (except to a single lodger) or part of your property has been used for business purposes only (although a room that is occasionally used as an office is fine), you won’t benefit from the relief. Very large properties more than 5,000 square metres in size (grounds and buildings) are also exempt.

What happens if I live away from home?

You may end up qualifying for less private residence relief even if you don’t live in your primary residence

At time of writing, you always qualify for private residence relief for the last 18 months that you own the property as long as, at some point, it was your primary residence. From 2020, this qualifying period will be just 9 months, not 18 months.

An additional 12 months’ relief is available for the first year in which you owned the property if:

  • the property itself was being built or renovated
  • you could not sell your old home during that time
  • you started to live in the property and it was your primary residence at the end of those 12 months.

In some circumstances, HMRC may extend the qualifying period from 12 months to 24 months.

It’s possible to get relief for these periods of time even if you nominate another home as your primary property.

Nominating a home

You can inform HRMC in writing that you wish to nominate a property as your primary home to qualify for private residence relief when you’re living away. However, to qualify, you must have lived in this property as your primary residence during your time of ownership. To nominate a home, you must inform HRMC within two years of change taking place (for example, when you’ve begun living away).

What if I have let out a primary residence and then come to sell it?

If, at any point, you have let out what was or is now your primary residence, you might have to pay Capital Gains Tax (single lodgers do not count).

You pay CGT on what’s known as your “chargeable gain.” Your chargeable gain is the amount of money you’ve made on the sale of a property with the amount of eligible private resident relief you’re entitled to claim.

Full relief is available for those years in which you lived in the property and for your last 18 months of ownership (down to 9 months from April 2020).

At time of writing, letting relief may also be available to you. With letting relief, you can claim the lowest amount to reduce capital gains tax exposure from the following:

  • £40,000 (or £80,000 for couples)
  • what you receive in private residence relief
  • equal to the amount of the chargeable gain you made from letting your property.

From April 2020, letting relief changes meaning that it can only be claimed by property owners in a shared occupancy with a tenant.

We can help

For help with all taxation relating to property, please call us today on 01932 704 700 or email your accounting partner at service@twpaccounting.co.uk.

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