Capital gains tax on the sale of your home
Other tax issues
Normally when you sell your home (‘main residence’ or ‘private residence’) you do not have to pay capital gains tax (CGT) on any profit, provided you have lived there throughout the entire period of ownership, because the gain is relieved (exempt) from tax. This relief is subject to certain conditions being satisfied. Here, we examine the rules, including the special treatment for those required to work away from their home, such as members of the armed forces.
The below guidance reflects the law as it is proposed to apply from 6 April 2020. However, at the time of writing the Finance Bill 2020 has not yet become law and it subject to change. As with all our guidance, we will endeavour to keep this page up-to-date with any changes but we recommend you seek professional advice.
What counts as my home for these purposes?
In the simplest case, if you own a single property and live there throughout your period of ownership, then that is your home for these purposes. These rules apply equally to houseboats and residential caravans. A garden area of up to half a hectare is included as part of your home, or a larger area if the property requires it.
⚠️ You and your spouse or civil partner may only have one private residence between you whilst you are 'living together'. Unless you are separated, you are deemed to be living together even if your spouse or civil partner is working away from ‘home’.
The position on permanent separation when a marriage or civil partnership breaks down is set out in this HMRC guidance. If you have not separated under a court order or formal deed of separation, the question is whether you have separated “in such circumstances that the separation is likely to be permanent”. Following such a separation, a married couple or civil partners can have different main residences.
If you live in more than one property, then you should declare which is your main private residence for these purposes within two years of acquiring another residence, even if one of them is not in the UK. However, if all but one of your residences has a negligible capital value (for example, a short term let flat), then the two-year time limit does not apply. In either case, you should advise HMRC of your decision in writing. Further information is available on GOV.UK.
What happens if I sell my home but I have not always lived in it?
There are special rules in this situation.
Broadly, for disposals on or after 6 April 2020, the following periods are always fully relieved from tax as long as you lived in the property as your home at some point:
Any period when you lived there and it was your only or main residence;
The last 9 months* of ownership (that may be extended to 36 months if you are disabled or you move to a long-term care home); and
The initial period of ownership during which the property was not your or anyone else’s residence, provided that you moved in within 24 months of acquiring the property and during that period either:
the construction, renovation, redecoration or alteration of the property had completed, or
you had sold a property which was (at the time of sale) your main home.
*This period was reduced from 18 months to 9 months for disposals (that is, where contracts were exchanged – which means the sale was legally agreed) on or after 6 April 2020.
As well as this, certain other periods may be fully relieved from tax provided that you lived in the property as your main home at some time both before and after the period of absence:
- Any absence up to a maximum of three years (this may be one absence or a series of absences which total three years);
- Any absence where throughout that absence you were employed overseas and all your duties were performed overseas; and
- Any absence up to a maximum of four years (this may be one absence or a series of absences up to four years maximum) where either:
- You worked too far from the property to use it as your home; or
- You were required by your employer to live somewhere else.
If you are unable to return to live in the property because of work restrictions after one of the work-related absences above, you can still count the period as a period of occupation.
You buy a house in May 2011, but do not move there until September 2011, because you were waiting for your previous home to be sold. Although you did not live there from May to September 2011, this is included as a period of occupation by you because it is less than 24 months and during this time your previous home was sold.
In December 2011, your job moved location within the UK and it was impossible for you to commute easily. You rented another house until March 2015 when you took up a new job overseas (performing all duties overseas).
In April 2019, you return to the UK to take up another position, resuming living in your property. The absence from December 2011 to April 2019 is fully relieved because:
- The period from December 2011 to March 2015 was an absence of up to four years where you worked too far from home; and
- The absence from March 2015 to April 2019 also qualified for relief because you were employed overseas and all your duties were performed overseas.
More information on periods of absence
Note that periods spent living in ‘job-related accommodation’ can also qualify for relief – see below.
You can also read more on GOV.UK.
What if I have used my home for my business?
A lot of people run their businesses from home. If you do, you need to look at how you have used your home when you sell or dispose of it before you can work out if there is any CGT to pay.
If you have been a foster carer or shared lives (adult placement) carer, the private residence relief on the proportion of any gain which relates to part of the property which had been set aside for the use of children or adults in your care is unrestricted.
What if I use rooms for both business and personal purposes?
If you use a room in your home for both business and private purposes – for example, you use a room as an office, but you also use it as a guest bedroom – this will not impact availability of relief from CGT.
What if I use a room solely for business purposes?
If you use any part of your home exclusively for business purposes – for example part of your home is used as a workshop for your business – that part will not be exempt from CGT. But you will still get the relief on the part used as your main home. This means that if you sell your home at a profit, you have to work out the amount of relief due and work out if there is any CGT to pay.
Example: Ailsa – home used as business premises
Ailsa uses 30% of her home exclusively as business premises and the other 70% is used as the area where she lives. When she later sells her home, she makes a gain of £120,000.
Ailsa is entitled to private residence relief of £84,000 on the part used as her home (70% of £120,000).
She will have CGT to pay on the remaining gain of £36,000 (£120,000 less £84,000).
How do I calculate any chargeable gain?
If you have not occupied your home (on an actual or ‘deemed’ basis) for the entire time you have owned it, then you may have to pay some CGT when you sell it.
You can find general information on how to calculate CGT on the main CGT page.
You can find detailed information about calculating a gain where there is only partial private residence relief in HMRC’s helpsheet 283 on GOV.UK.
The important thing to realise is that any gain you make on the sale of your private residence is deemed to accrue evenly over your period of ownership of the property. Thus if you owned the property for 8 years before selling it, and the gain on sale was £40,000, then the gain is deemed to have arisen at the rate of £5,000 per year (£40,000 divided by 8 years). It does not matter for CGT purposes if in fact the property rocketed in value over, say, the first three years and then stayed at the same value for the next five years.
If you have only lived in your home (or been deemed to have lived in your home), for say 6 out of 8 years then 6/8ths of the gain will be exempt and 2/8ths will be chargeable (that is, using the above example figures, £30,000 will be exempt and £10,000 will be chargeable).
You may use your capital gains tax annual exemption against this gain (and, if jointly owned, the other owners might have their own annual exemption to set against their share of the gain).
What if I have a mortgage to repay after selling the property?
Another point to note is that the gain is the difference between:
a) the amount you sell the property for, and
b) the amount you paid for it.
If you have remortgaged the property and the amount of your mortgage is more than the amount you paid for the property, you can still only use the amount you paid for it to calculate your gain.
For example, you buy a property for £100,000, three years later you remortgage for £125,000 and then after you have owned the property for 8 years you sell it for £175,000. The gain is £175,000 minus £100,000 which is £75,000. The fact that you are only going to receive £50,000 once you have paid off the mortgage is irrelevant.
What if I was living in service accommodation?
Service accommodation normally qualifies as ‘job-related accommodation’. From 6 April 2020, this treatment is extended to the case where you receive an armed forces accommodation allowance towards the cost of accommodation which may be rented in the private rental sector (as opposed to accommodation which is provided directly by the Ministry of Defence).
A period during which you live in job-related accommodation is treated as a period of living in your main home. It is not treated as a period of absence and any gain arising for that period of time is fully free of capital gains tax provided that you intend to occupy your property when you leave the job-related accommodation. If you do not actually resume living in your main home after you leave the service accommodation, you will have to prove the date when you changed your mind about living there – and from that date the property will cease to qualify for private residence relief under this rule. You are still entitled to the relief that always allows the gain arising over the last 9 months of ownership (or 18 months, before 6 April 2020) to be exempt.
If you are a member of the armed services and you are absent from your home due to armed service related activities, these specific rules, in combination with the more general rules on absences set out above, are likely to mean that you will probably not have to pay CGT on disposal of your home.
What if the property is jointly owned?
Normally each person’s share of a gain is calculated based on their own circumstances – but there are special rules for married couples and civil partners. Where one spouse or civil partner qualifies for private residence relief, for example because they are living in job-related accommodation, then the other spouse or civil partner will qualify.
If the property is owned by two or more people who are not married or in a civil partnership, then each person’s share of the gain is calculated separately. This means if you own a property with your partner, but you are not married or in a civil partnership with them, their share of any gain on the sale of your private residence may not qualify for reliefs in the same way that any gain arising on your share of the property would.
If a main home, or an interest in a main home, is transferred from one spouse or civil partner to the other, then the receiving spouse or civil partner inherits the ownership period and history of whether or not that property has been used as a main residence. For transfers prior to 6 April 2020, it was necessary that the property was a main residence at the time of the transfer – but for transfers on or after 6 April 2020 this requirement has been removed.
I let out a room in our home to a lodger. What effect does that have when I sell our home?
You should have been paying income tax on the property income arising from this activity unless your income fell within the rent-a-room provisions or property allowance. Now that you are selling the property, the fact that you had a lodger should make no difference to the normal rules for selling a main home (see above), so long as you were physically living at the property while you had a lodger.
If you have a single lodger who has lived as a member of the owner’s family (meaning that they share the living accommodation with you and have meals with you), then by specific concession no part of the accommodation is treated as having ceased to be occupied by you as your main residence. This means that having a such a lodger will not restrict the availability of private residence relief.
However, it may be possible to justify that private residence relief should not be restricted in broader circumstances than the concession describes, provided the lodger does not have ‘exclusive use’ of any specific area and essentially shares the residence with you.
In other cases, then the legislation allows for ‘letting relief’ if part of the home is used as your only or main residence and another part is let out as residential accommodation.
⚠️ Note that for disposals on or after 6 April 2020, it is necessary for the owner to live in the property at the same time as the tenant in order to be eligible for ‘letting relief’ for the period of the letting, even for periods prior to 6 April 2020.
If you let out the property and did not live there yourself, you should consider whether any relief is available for those periods under the general provisions for periods of ‘deemed occupation’ described above.
If you were running a business, such as a ‘bed and breakfast’ business from your home, you should take professional advice before you sell the property.
I rented out part of my property as residential accommodation while I was living in another part. What effect does that have?
Should you sell the property at a later date, ‘letting relief’ may be available to cover the gain which is attributable to the part of the property which has been let.
There are four steps to take:
- Work out any capital gain arising.
- Next you should work out how much of the gain will be fully relieved because you occupied (or were deemed to occupy) the whole property as your main residence, including the final nine months of ownership.
- If there is any unrelieved gain remaining, you need to work out how much of that unrelieved gain relates to the period during which part of the property was let.
- For this part of the gain, you will then need to decide what proportion relates to the part you lived in and what proportion relates to the part which was let as residential accommodation. The apportionment should be done on a just and reasonable basis.
Letting relief is then the smaller of
- £40,000; and
- the amount of private residence relief given
If you think you are eligible for letting relief under these rules, we strongly suggest you seek advice as the calculation can be complex.
My spouse/civil partner is working overseas. Does this mean we can each have a private residence?
Generally speaking, no. As stated above, you may only have one private residence between you whilst you are ‘living together’. You will be treated as still living together unless your marriage has broken down and you consider yourselves to be separated. The same applies to civil partners.
You can read more about the breakdown of a marriage or civil partnership as it affects capital gains tax here. Remember that there will also be other tax issues arising at that time.
I am not resident in the UK. Do I still pay capital gains tax when I sell my home in the UK?
This is a complicated situation. The first thing to say is that if you are a UK resident, you may be liable to CGT on disposals of assets located anywhere in the world, not just your UK-located assets.
Therefore, you should check that you are definitely not resident in the UK for tax purposes at the time you sell your home before going any further. Assuming you are not resident in the UK, then there are different scenarios to be examined.
Properties sold on or after 6 April 2015
A new CGT charge was introduced from 6 April 2015 where a non-UK resident sells residential property in the UK. From 6 April 2019, the charge was extended to disposals of all UK land and property. You can choose how to calculate the gain on which the charge is based in one of three ways:
- On the difference between a) the amount the property is sold for and b) its value at 6 April 2015. You will need to establish the value of the property at 6 April 2015; or
- Over the whole period of ownership and then time apportion it and the part of the gain that relates to the period from 6 April 2015 would be subject to these provisions; or
- If you owned the property before 6 April 2015 and sold it for less than it cost you then you can calculate the loss over the whole period of ownership but the way you can use this loss is restricted.
If you wish to choose options 2 or 3 you need to make an election to do so. Private residence relief may apply to any chargeable gain calculated under options 1 and 2.
For disposals on or after 6 April 2020, you must then report the disposal within 30 days of completion using HMRC’s new Report and pay CGT on UK property service. Guidance for non-resident individuals who do not have a National Insurance number or Unique Taxpayer Reference (UTR) can be found here. Tax will also be due by the same point. If you need to file a Self Assessment tax return for the year, you will need to ensure that the gains are included even if you have already reported them to HMRC using this service.
You can read more about this charge on GOV.UK.
Note that you may also have a capital gains tax liability on any gain that is not captured above if you are a temporary non-UK resident.
Properties sold before 6 April 2015
You may have a capital gains tax liability if you are a temporary non-UK resident.
I bought a home overseas while I was working there. Do I pay capital gains tax when I sell it?
The first thing to check is whether you are liable to capital gains tax in the country where the property is situated.
As far as capital gains tax in the UK is concerned, it depends on your residence status when the property is sold.
If you are resident in the UK, then you need to calculate any gain arising, taking into account any private residence relief that might be available. If there is a gain arising, you need to calculate the tax payable. You may be able to set off any overseas capital gains tax that you have paid on this disposal against your UK capital gains tax liability. This is called double tax relief. This is a complex area and if this applies to you, you may need to take professional advice.
If you are a temporary non-UK resident, then you need to perform the calculations as above when you return to the UK and you may have tax to pay.
If you are non-resident in the UK (and not temporarily non-resident) when the property is sold, then no UK capital gains tax will be due.
Where can I find more information?
GOV.UK has some commentary and examples on family houses.
The HMRC Manuals also have some information on double tax relief.