Selling your home can be an exciting and rewarding venture, but it’s important to understand the tax implications that come along with it. This is a brief guidance on Capital Gains Tax when selling your home, including information on Private Residence Relief, Letting Relief, and how to calculate the amount of tax you may need to pay. By familiarizing yourself with these rules and regulations, you can ensure that you make informed decisions and minimise the amount of Capital Gains Tax you have to pay when selling your property.
Tax When You Sell Your Home
Selling your home can be an exciting experience. However, it’s important to understand the tax implications that come with it. This article will guide you through the different aspects of tax when you sell your home, including private residence relief, how to work out your gain, living away from your home, nominating a home, and what to do if you let out your home. We’ll also provide examples to help illustrate these concepts.
Private Residence Relief
Private Residence Relief is a tax relief that can help reduce or eliminate the amount of Capital Gains Tax you owe when you sell your home. It applies to your main residence, which is the place where you live most of the time. If you meet the eligibility criteria, you may be able to claim this relief and save money on your tax bill.
Work Out Your Gain
When calculating your gain, you will need to determine the difference between the sale price of your home and its original purchase price. This is known as the “gain”. However, you can deduct certain expenses from the gain, such as the costs of buying and selling the property, as well as any improvements you have made. This will give you the “chargeable gain” on which you will be taxed. Now, if you have been living in your home for the entire time that you own it and it is the only residential property that you own, you will get 100 percent Private resident relief. This means that there will be zero Capital Gains Tax to pay on the sale. If however you have had to rent out the whole or part of your main resident during the time of your ownership, then there may be capital gains tax to pay on the period that the property was rented out.
Living Away From Your Home
If you have been living away from your home for a period of time, you may still be eligible for Private Residence Relief. The rules regarding this relief can be complex, but in general, you can still claim it for the time you lived in the property and for the last 9 months of ownership, even if you were not living there during that time.
Nominating a Home
If you own more than one property, you can nominate which one you consider to be your main residence. This can have an impact on the amount of tax you owe when you sell your properties. By designating one property as your main residence, you can claim Private Residence Relief on that property and potentially reduce your capital gains tax liability.
If You Let Out Your Home
If you choose to let out your home to a tenant, you may have to pay Capital Gains Tax on the gain made from the sale. However, there are some exceptions to this. For example, if you have a lodger who shares living space with you, or if your children or parents live with you and pay you rent or housekeeping, you are not considered to be letting out your home and may be exempt from paying Capital Gains Tax on the gain.
Work Out How Much Tax You Have to Pay
To determine how much tax you owe, you will need to calculate your “chargeable gain”. This is your gain minus any Private Residence Relief you are eligible for. The amount of relief you can claim depends on various factors, such as the length of time you lived in the property and the date of sale. The rules can be complex, so it’s important to consult a tax professional or refer to HM Revenue & Customs (HMRC) guidelines for assistance.
If You Only Own One Home and You’re Disabled, in Long-Term Residential Care, or Sold the Property Before 6 April 2014
If you meet certain criteria, such as being disabled, in long-term residential care, or having sold the property before 6 April 2014, you may be eligible for additional relief. In these cases, you can claim full relief for the last 36 months you owned the property, instead of the usual 9 or 18 months. This can significantly reduce the amount of Capital Gains Tax you owe.
Example
Let’s consider an example to better understand how Private Residence Relief works. Suppose you sell your home and make a gain of £100,000. You owned the property for 10 years, living in it for the first 5 years and letting it out for the remaining 5 years. In this scenario, you would be eligible for Private Residence Relief for the time you lived in the property, which is 5 years. You would also be entitled to relief for the last 9 months of ownership, even if you were not living there at the time. This equates to a total of 5.75 years, or 57.5% of the time you owned the property. Therefore, you would receive Private Residence Relief on 57.5% of your gain, which amounts to £57,500. The remaining 42.5% (£42,500) of the gain would be considered your chargeable gain, on which you would owe tax.
In Conclusion
Selling your home can have tax implications, but understanding the rules and regulations can help you navigate the process smoothly. Private Residence Relief can be a valuable tool in reducing your Capital Gains Tax liability, while other factors such as living away from your home, nominating a home, and letting out your property may also influence the amount of tax you owe. By carefully considering these factors and seeking professional advice if necessary, you can ensure a successful and financially advantageous sale of your home.
