This Content Was Last Updated on November 5, 2015 by Jessica Garbett
Its well known that private homes are normally outside of the scope of CGT. But a few pitfalls to look out for:
~ the exemption applies to “main residence”. A person, or a married couple/civil partners, can only have one private home at a time. Any other homes are “second homes” and taxable, although you can elect which of your homes is your “main residence”
~ on marriage breakdown complications can arise (i) with the departing partner owning another home and (ii) transfer of an existing family home to one or other partner. Take advice.
~ a home can include houseboats, permanently sited caravans, and other property.
~ in assessing whether a property is someones main home, the quality of residence is considered. For example the frequent suggestion that a developer move into a home they have built for a period of time in order to gain exemption, often fails as the occupation lacks the necessary permanency and quality, especially if they then move back to the previous home.
~ problems can arise with larger “estate” type properties where there are multiple buildings and out buildings, or large parcels of land. Generally the law implies common sense, but advice should be taken if necessary.
~ problems can occur with selling off gardens for development. In many circumstances the land can be sold tax free, so long as the house is still owned and lived in as the main residence, but advice needs to be taken in each circumstance. Sometimes main residence relief is denied, or attempted to be denied, on garden sales as the land being sold is considered to be something other than garden. There are grey areas in the law and practice here.
~ where a person has more than one residence they can elect which one is to be their main residence. In the absence of a election, a direction will be made by HMRC, if necessary, based on the facts as to which property seems to be the main one. An election can be made anytime within two years of acquiring the property, and if the combination of properties changes, eg a third property, or a change of one of two, then the two year clock restarts. The two year clock also starts / restarts on marriage, where each party as one or more properties.
~ if a property is rented out, eg due to temporary absence, then a proportion of the CGT allowance can be lost.
~ the last 36 months of ownership of a property which has been a private residence is always treated as a period of private residence even if the property is rented out during that period.
~ if you move out of your home for work purposes, then in some circumstances the time away counts as private ownership even if you rent the property out. For this to qualify (a) you must move back in after your work assignment finishes, (b) the period must be less than four years if working in the UK, unlimited if working abroad, and (c) you must not have had another main residence in this time, ie you must be in short term rented accommodation or employer provided accommodation.
~ if a property is used for mixed residential and non residential purposes, eg a business is run from home, then exemption will not apply to parts used exclusively for business. Generally using a room or two from home part time as a office isn’t a problem.
~ if a property which has been your private home is let residentially then CGT lettings relief will increase the element of CGT exemption. This can apply to B&Bs / small hotels.
~ letting under “rent a room” doesn’t effect CGT exemptions.
~ private residence exceptions are normally extended to trusts where the trust concurs a occupancy right on a beneficiary.
~ problems can arise where works are carried out to enhance a properties value before sale, especially structural alterations / sub division into smaller units. Advice should be taken.