If you make a profit when selling or disposing of a property that is not your home, Capital Gains Tax is payable. However, when selling or disposing of a property that is your home, tax is not payable, providing that you’re eligible for Private Residence Relief.
Private Residence Relief
Private Residence Relief is an automatic relief that you may be entitled to when selling your home. This relief means that you do not have to pay Capital Gains Tax – even when you sell your home at a higher price than what you initially paid for it. You do not need to do anything in order to receive this relief.
In order to be eligible for Private Residence Relief, the home you are selling must be your only home that you have lived in as your main home for the whole time that you have owned it. Furthermore, you must not have let part of your home out (doesn’t include letting out to a single lodger) or used part of it solely for business purposes. If you purchased the property just to make a gain, or the property’s grounds and buildings exceed 5,000 square metres in total, you may have to pay some Capital Gains Tax.
When Tax is Payable
If you do not qualify for full Private Residence Relief, you will need to work out the gain that you made when selling your home. This is usually the difference between the price you paid for your home and the price you sold it for.
There are certain situations where the market value should be used to work out your gain. These include:
If it was a gift
If you sold it at a cheaper price in order to help the buyer
You inherited the asset and don’t know the Inheritance Tax value
You owned it before April 1982
When paying tax on the sale of your home, the costs of buying, selling or improving the property can be deducted. These can include selling fees such as estate agent & solicitor cost as well as improvement expenses such as the building of an extension. Standard maintenance such as redecorating does not count as an expense – nor does interest on any loans that were taken out in order to purchase the property.
Unless it was to a single lodger, you may have to pay Capital Gains Tax when you come to sell your home if you have previously let part of it out. You need to work out the proportion of your home you let out in order to determine your gain. You will not be eligible for Private Residence Relief on this gain; however you may be entitled to Letting Relief.
If at any time you lived in the part of your home you let out, you will get full Letting Relief for the last 18 months that you owned the property. Calculations can become complicated therefore it’s advisable to seek professional help.