From 6 April 2020 the relief available on your disposal has changed.
You would normally have to pay Capital Gains Tax (CGT) on any gain you make if you dispose of:
- a dwelling house (which can include a house, flat, houseboat or fixed caravan) which is your home
- part of a dwelling house which is your home
- part of the garden attached to your home
However, you’ll be entitled to full relief where all the following conditions are met:
- the dwelling house has been your only or main residence throughout your period of ownership
- you have not been absent, other than for an allowed period of absence or because you’ve been living in job-related accommodation, during your period of ownership
- the garden or grounds including the buildings on them are not greater than the permitted area
- no part of your home has been used exclusively for business purposes during your period of ownership
We’ve explained these definitions in the section definition of terms. If you meet all of these conditions, you will not have to pay CGT on the disposal. You will not need to complete the Capital Gains Tax summary pages of your tax return if you’ve made no other disposals or chargeable gains and do not wish to make any capital gains claims or elections. Read page 5 of the tax return guide for more information.
If you do not meet all of the conditions, you may still get partial relief under certain circumstances and you’ll need to complete the Capital Gains Tax summary pages of your tax return. This helpsheet describes the circumstances when you may get relief and explains how much relief you can deduct from any gain to calculate the chargeable gain.
Even if you meet all of these conditions, you will not get Private Residence Relief if:
- you dispose of all or part of your garden after you’ve disposed of your home
- you acquire a dwelling house and/or spend money on it in order to realise a gain on its disposal
For example, you may have bought the house to sell it quickly at a profit or, if you were a tenant, you may have bought out the freehold in order to increase your profit on sale. In this case, you’ll need to provide details on your tax return.
If you’ve made a loss on the disposal instead of a gain
If you make a loss on the disposal of your home and you would have got Private Residence Relief if you had made a gain, your loss will not be an allowable loss and you will not be able to offset it against any gains you’ve made. If you would have got partial relief, part of your loss will not be allowable and that part should be calculated in the same way as you would have calculated the partial relief if you had made a gain.
Who qualifies for relief
Any individual is entitled to the relief on any gain arising on the disposal of their only or main residence. This is provided that, in calculating the amount of the gain that would be a chargeable gain if the relief did not exist, no account would have to be taken of any Gift Hold-Over Relief obtained under section 260 of the Taxation of Chargeable Gains Act 1992 by any person for an earlier disposal.
Special transitional rules that may allow some Private Residence Relief to apply where Gift Hold-Over Relief is obtained for a transfer which was made before 10 December 2003. Relief under these transitional provisions must be claimed (see how to claim relief). Trustees of settled property and personal representatives may claim relief in some circumstances, as explained below. Companies are not entitled to relief.
You’re entitled to relief if you own the freehold of your home or if you’re a tenant owning a lease. You’re also entitled to relief if you jointly own the freehold or lease with someone else.
Capital Gains Tax for non-residents on UK residential property
From 6 April 2015 if you sell (or dispose of) the whole or part of an interest in a UK residential property when non-resident, you must tell HMRC within 30 days of the date of conveyance. You may have to pay CGT on any gains you make. You can find more information on this in Capital Gains Tax for non-residents: UK residential property.
Definition of terms
Your dwelling house may be a single building, for example, a detached house. It may be more than one building, for example, a house with a detached garage. Or it may be part of a building, for example, a flat. If your home includes more than one building, for example, if it has several outbuildings, any relief available for your dwelling house might not extend to all of the outbuildings.
Only or main residence
If you live in, as your home, 2 or more houses, you can only have one main residence at a time for Private Residence Relief.
You can nominate which residence is to be treated as your main residence for any period. Your nomination must be made within 2 years of the date you first have a particular combination of residences. If there’s a change in your combination of residences, a new 2-year period begins. If you do not make a nomination, the question of which is your main residence will be determined on the facts.
Period of ownership
Your period of ownership begins on the date you first acquired the dwelling house, or on 31 March 1982 if that is later. It ends when you dispose of it. The final 18 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point.
Period of absence
Some periods when you were not using the house as your only or main residence will still qualify for relief. These should be treated as periods of actual occupation when you’re calculating the fraction of any gain that qualifies for relief.
If, for up to a period of 12 months, you do not occupy your new home when you acquire it because you’re unable to sell your old home, or you need to carry out refurbishment, you can treat up to the first 12 months as if the house had been your only or main residence in that period. In exceptional circumstances, we may allow you to treat a longer period (up to a total of 2 years) in the same way. The same treatment applies when you buy land to build a house on.
CGT may be payable if:
– part of your home is used exclusively for business purposes, or you’ve let part of your home, split the gain between the business part or the let part, which is chargeable, and your own living accommodation, which is exempt
– you have not always lived in your home, other than allowed periods of absence
– you’ve had more than one home
– you’ve let your home
– you’re selling land which formed part of your garden
How to claim relief
In your computation of the gain on any relevant disposal included with the Capital Gains Tax summary pages CG 1 to CG 4, either in box 54 on page CG 3 or in your attached computation, write that ‘Private Residence Relief is claimed’ and state the amount of relief claimed. In addition enter code PRR (where Lettings Relief does not apply) or LET (where Lettings Relief does apply) in box 8.
Contact MCL Accountants Southend today on 01702 593 029 to optimise your tax position or if you need any assistance with your self-assessment tax return and private residence relief claim.