Selling your home
Other tax issues
Normally if you sell (or otherwise dispose of – for example, if you give away) your only or main home, you do not have to pay capital gains tax (CGT) on any profit if it has been your only or main home throughout the entire period of ownership. This is called private residence relief. It can also apply in part to gains on the sale of a property which was not always used as your only or main home.
What counts as my only or main home for these purposes?
First, note that for capital gains tax (CGT) purposes, a home can also be called a residence or private residence. The three terms are interchangeable and refer to any dwelling which you use as a residence – in simple terms, it is somewhere you live. It is possible to have more than one home at the same time.
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.
If you have more than one home (or residence) for a period of time, then you need to understand which is your main home (or main residence) for that period. This used to be called your principal private residence (PPR).
Whether or not a property is your home therefore depends on how you use it. This can change over time. For example, if you let out a property which used to be your home, then it will no longer be treated as your home for the period during which it is let. This is important as the capital gains tax consequences on disposal depend on how the property was used over the period of ownership.
If you dispose of a property which has been used as your only or main home at some point in the period of ownership, the disposal will attract some amount of private residence relief (PRR). PRR can also be called main residence relief.
In the simplest case, if you dispose of a property which has been used as your only or main home throughout the entire period of ownership, then it will qualify for full relief.
⚠️ You and your spouse or civil partner may only have one main 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 have a partner (who is not your spouse or civil partner) and you each own a home, you can each potentially get main residence relief on your respective properties for the same period. However, for this to apply you would each need to use your own property as a main residence – that is, you live separately. A main residence nomination (see below) may be advisable if, based on the facts, although you each use your own property as a residence, you both live together in one of the two properties as a main residence. Otherwise, the relief might be denied on the other residence.
If you move in together into one of your homes and the other partner lets theirs out, then read our further guidance below on calculating any gain on disposal of the property which is no longer lived in.
I live in a rented property – can this be a main residence?
If you live in a property which you rent but do not own, this can be a main residence for private residence relief purposes.
You might wonder why this matters – you cannot sell a property you do not own and therefore will not ever make a capital gain on it! Usually it will not matter, but the point is important if you have another property that you own which also qualifies as a residence. In this instance the availability of private residence relief might be denied on the property you own if, based on the facts, the rental property is your ‘main’ residence. We discuss this more below.
What is a main residence nomination (election)?
If you have more than one residence at the same time (whether rented or owned, and whether actually occupied or deemed to be occupied as a residence), then you may declare which of these properties you wish to treat as your ‘main’ residence for capital gains tax purposes. A nomination can be made in respect of any residence, even if it would not otherwise be considered your ‘main’ residence. However, it must be a property that is used as one of your residences (or deemed to be occupied as a residence). If you do not make such a nomination, the question of which property is your ‘main’ residence will be decided based on the facts.
Any nomination must usually be made within two years of any change in combination of your residences. If no election is made, then your main residence will be a question of fact.
Daniel has two properties which he occupies as residences. One is in Blackburn and the other is a cottage in North Wales that he inherited from his late aunt 18 months ago. Most of Daniel’s time is spent at his Blackburn residence, but he loves the North Wales cottage and has spent time furnishing and decorating it. He usually spends weekends and large portions of the summer in the North Wales cottage and does not let it out. He is registered to vote in Blackburn and is registered with the doctor and dentist there, too. All of his correspondence – such as from the bank, HMRC and DVLA are sent to his Blackburn address.
Based on the facts, it is likely that Blackburn would be viewed as his ‘main’ residence. However, Daniel could decide to make an election for the North Wales cottage to be his nominated main residence. The election would need to be made within two years of acquiring (inheriting in this case) the cottage.
As mentioned, it is usually necessary for a main residence nomination to be made within two years of a change in combination of your residences. However, if all but one of your residences has a negligible capital value (for example, a rented property), then the two-year time limit does not apply. In either case, you should advise HMRC of your decision in writing. Nominations affecting both spouses or civil partners must be given by both parties. Further information on how to make the nomination is available on GOV.UK.
Main residence nominations can be a complicated area. You need to bear in mind that if you nominate a property to be your main residence, then any other property would no longer qualify for full private residence relief on sale.
If you have more than one property that could qualify as a ‘residence’ at the same time, you should seek advice about whether a main residence nomination should be made based on your circumstances.
What happens if I dispose of a property which has not always been my only or main home?
There are special rules in this situation.
Broadly, for disposals on or after 6 April 2020, the following periods are fully relieved from tax as long as you lived in the property as your only or main home at some point:
- Any period when you lived there and it was your only or main residence;
- The last 9 months of ownership (this may be extended to 36 months if you, or your spouse/civil partner, are disabled or you move to a long-term care home – see below); 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.
Deemed occupation during certain periods of absence
In certain circumstances, if you are absent for a period from a property which has been your main residence, it is nevertheless deemed to be occupied as a residence during that period. This means that these periods may also qualify for private residence relief if you had no other residence at the time.
The following absences may qualify as period of deemed occupation:
- 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, broadly, either:
- You worked (including self-employed work) too far from the property to use it as your home; or
- You were required by your employer to live somewhere else.
In general, the rules require that you lived in the property as your only or main home at some time both before and after the period of absence. However, if you are unable to return to live in the property because of work restrictions after one of the work-related absences above (2 and 3), you can still count the period as a period of occupation.
The above rules only treat the property as being occupied as a residence – not necessarily as a main residence. Therefore, if you have another residence during the period (whether owned or rented) and you wish to secure private residence relief on the property from which you are absent, it is recommended to make a nomination to HMRC confirming that you wish to treat that property as your main residence during the period. If you do not make such a nomination, the question of which property was your main residence will be decided on the facts.
Magdalena bought a house in Stafford in May 2012, but did not move there until September 2012, because she was waiting for her previous home to be sold. Although she did not live there from May 2012 to September 2012, this is nevertheless treated as Magdalena’s only or main residence during the period because it is less than 24 months and during this time her previous home was sold.
From December 2012, Magdalena’s employer needed her to work in Glasgow. It was impossible for her to commute easily between Stafford and Glasgow. She therefore moved into rental accommodation in Glasgow. She changed her correspondence address for all purposes to her Glasgow rented property and registered to vote there. Magdalena wrote to HMRC notify them that she was nominating her property in Stafford to be considered her main residence for capital gains tax purposes. The rules allow her to do this even though, based on the facts, her rented home in Glasgow might be considered her main residence.
Magdalena stayed in Glasgow until March 2016 when she took up a new job overseas (performing all duties overseas). When she settled in her new rented home overseas, she once again wrote to HMRC to let them know that she was nominating her Stafford property to be her main residence for capital gains tax purposes. Since her combination of residences had changed it was necessary to make this fresh nomination.
In April 2020, Magdalena returned to the UK to take up another position, resuming living in her property in Stafford.
The absence from December 2012 to April 2020 is fully relieved because:
- the period from December 2012 to March 2016 was an absence of up to four years where she worked too far from home; and
- the absence from March 2016 to April 2020 also qualified for relief because she was employed overseas and all her duties were performed overseas.
In the case of both ‘absences’, Magdalena had reoccupied the Stafford property at some point following the period of absence, and she had also made valid nominations to treat the property as her main residence when she was living in the rented properties. This avoided any possibility of the properties she was renting being considered her ‘main residence’ based on the facts and therefore losing the availability of private residence relief on the Stafford property during the periods of absence.
If Magdalena had not been aware that a nomination was required when she was absent from the Stafford property and had only found this information out after selling it, she should be able to make a nomination outside of the usual two-year window. This is because she only actually owns one property and only had ‘negligible capital interests’ in the other properties, as they were rented. The position would be different if she had owned (rather than rented) the properties she had lived in while absent from Stafford. In this case, the two-year time limit to make nominations would apply strictly.
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?
If you run a business from home, 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 qualify for main residence relief. 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), although she may be able to deduct her annual exempt amount if it is available.
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 only or main residence is deemed to accrue evenly over your period of ownership of the property. This means that 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 sharply increased 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 qualify for relief and 2/8ths will be chargeable (that is, using the above example figures, £30,000 will be qualify for relief and £10,000 will be chargeable).
You may use your capital gains tax annual exempt amount against this gain (and, if jointly owned, the other owners might have their own annual exempt amount to set against their share of the gain).
What if I have a mortgage to repay after selling the property?
The capital 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. This is illustrated below:
What if I make a loss on disposing of a property that is, or has been at some point, my only or main home?
If you are disposing of a property which has been your only or main home throughout the entire period of ownership, or otherwise if private residence relief would have applied in full if the disposal had been at a gain, then the loss cannot be offset against other capital gains.
If private residence relief would not have applied in full on the disposal, it is possible to offset the loss which relates to the part would not have qualified for private residence relief.
This loss is first offset against capital gains made in the same tax year, if there are any, and any remaining loss is carried forward to offset against gains in a future tax year.
In certain cases, such as where you wish to offset or carry forward such a loss, you will need to report the disposal to HMRC.
See also Capital losses.
Rashid bought a property for £200,000 and sold it 3 years later in September 2023 for £180,000. He lived in the property for the first 9 months as his only home, after which point he let it out until the point of sale. If he had sold the property at a gain, 18 out of the 36 months of ownership would have qualified for private residence relief (being the 9 months of actual occupation plus the final period exemption of 9 months).
Therefore, upon sale, only 50% of the £20,000 loss (equating to £10,000) will be offset against any other gains made in the same tax year, or otherwise carried forward.
What if I am disabled or a long-term resident of a care home?
If you dispose of a property which has been used as your only or main residence at some point in the period of ownership, the final period exemption is extended from 9 months to 36 months if:
- at the date of disposal, you are disabled or long-term (that is, for at least three months) resident in a care home; and
- you do not own any other property which has at any point been your only or main residence.
The 36-month extension can also apply if your spouse or civil partner is either disabled or long-term resident in a care home, provided the second bullet point is true of your spouse or civil partner as well as you.
What if I was living in job-related accommodation, including service accommodation?
If you own a property which you intend to occupy as your only or main residence, while you live in other job-related accommodation you are treated as if you lived in your own property as a main residence. This will continue for as long as you have such an intention, even if you never actually occupy that property. Any gain arising for that period of time is therefore free of capital gains tax. You should keep evidence of your intention to occupy the property as a main residence.
If your intention changes and you no longer intend to occupy the property you own as a main residence, you will be eligible for relief up to the point your intention changed. You should keep records which indicate the change of intention. You are still entitled to the relief that always allows the gain arising over the last 9 months of ownership to qualify for relief.
Armed forces – living in service accommodation
Service accommodation normally qualifies as job-related accommodation. This treatment also applies 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).
These rules, together with the other rules on absences, mean that members of the armed services absent from home due to armed service-related activities will probably not have to pay CGT on disposal of their 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 main 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 is deemed to acquire that interest:
(a) at no gain, no loss – in other words, they inherit the base cost of the transferring spouse or civil partner,
(b) the receiving spouse or civil partner is deemed to have acquired the property at the same date that the transferring spouse or civil partner acquired it, and
(c) the receiving spouse or civil partner ‘inherits’ from the transferring spouse or civil partner the history of whether or not that property has been used as a main residence.
For example, suppose you purchase a buy-to-let property in June 2018 and you transfer a 50% interest to your spouse in June 2023 at which point you both move into it as a main residence, and you then sell the property in June 2028. Upon sale, you would each be deemed to have owned the property for 10 years and have used it as a main residence for 5 out of the 10 years, even though your spouse will have only actually owned their share for 5 years and used it as a main residence for 100% of their period of ownership.
I let out a room in our home to a lodger. What effect does that have when I sell our home?
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 and you were not operating a trade. 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.
If you have a lodger who has lived as a member of your family (meaning that they share the living accommodation with you and have meals with you), then under an HMRC Statement of Practice no part of the accommodation is treated as having ceased to be occupied by you as your main residence. This means that having 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’ (see the question below) if part of the home is used as your only or main residence and another part is let out as residential accommodation.
HMRC acknowledge that “the domestic arrangements of individuals are endlessly variable”. Accordingly, sometimes it may be unclear which rules apply. However, sometimes you may conclude that no CGT is payable for any arguable scenario.
The impact of letting out part of your home can be summarised by the following flowchart:
- HMRC draw a distinction between, for example, a private individual taking in a lodger into their home and someone who is running a lodging house as a business. If you have more than one lodger, HMRC may consider this a sign that you are operating a trade. You should seek advice if you are unsure, though note that letting relief may apply in any case.
- For details, see HMRC's Statement of Practice 14/1980.
⚠️ 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.
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. As noted above, this relief is only available on disposals from 6 April 2020 where the owner was living in the property at the same time as the letting. 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.
‘Letting relief’, where you let out a specific and identifiable part of the property (to which the occupant will normally have exclusive use), is different from the ‘lodger’ situation described above, where the individual lives with you and shares the accommodation with you in broadly similar circumstances to where the rental income would qualify for rent-a-room relief. This is illustrated as follows:
Rent-a-room relief 333 by LITRG
If the part let out has its own separate entrance (for example, a self-contained annex), then HMRC may take the view that it is actually a separate dwelling entirely. In this case, if you have not occupied that separate dwelling as a main residence yourself then you would not be eligible for letting relief on its disposal. If you are in any doubt, you should seek advice.
Provided the part let is considered part of your main residence and not a separate dwelling, for letting relief 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 have two main residences?
Generally speaking, no. As stated above, spouses and civil partners may only have one main residence between you whilst you are ‘living together’. You will be treated as still living together unless your marriage/civil partnership has broken down and you consider yourselves to be separated.
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 bought a home overseas while I was working there. Do I pay capital gains tax when I dispose of 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 when the property is sold, 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.
If you have paid tax in the overseas country, please refer to the HMRC Manuals, which have some information on double tax relief.
Where can I find more information?
GOV.UK has some basic guidance on selling your home.