When you sell your main residence (i.e. your home) tax relief known as principle private residence (PPR) relief means there is usually no Capital Gains Tax (CGT) to pay.
In assessing whether a property is a main residence where someone has one or more homes, HM Revenue & Customs will look at the quality of their occupation and will consider issues including whether the address:
- is used for receiving utility and other bills
- appears as their address on the electoral roll
- is used by their bank.
You are entitled to PPR relief when you sell a property provided it was your main residence during the time that you owned it. If it was not your only main residence during your ownership, you will be taxed in proportion to the periods when it was not your main residence (and therefore did not qualify for PPR).
However, some periods of absence do qualify for PPR, including the last 18 months of ownership.
Although you can generally only have one main residence for PPR purposes at any point in time, if you own two properties and both are available for your occupation, you can nominate the one you would like to be treated as your main home.
By doing this, it is possible to minimise CGT on both properties by switching your PPR between them, although time limits apply for making this election.
You may need to pay CGT if you sell a property you have been letting but it may be possible to reduce CGT by transferring part of an interest in the property to a spouse or civil partner before the sale, to maximise the use of annual exemptions and lower rate bands.
In addition, where a taxable gain arises on a property that was a private residence qualifying for PPR and was also let out at some point, a maximum lettings exemption of up to £40,000 per owner is available.
Capital Gains Tax is a complex issue. Working with Milsted Langdon’s CGT specialists can help to clarify the issues involved and provide expert advice to help maximise the tax efficiency of your property assets.