Analysis: Is there tax to pay when you sell your home?

Graham Scott, Private Client Partner, discusses a change in the Capital Gains Tax rules on the sale of family homes.

It is not always realised that there can sometimes be Capital Gains Tax consequences when you sell your home.

The general rule is that when you sell your main home, any gain made on the sale is free of the tax due to the application of Principal Private Residence Relief. The relief does not apply to any property you own and in which you do not live, although some relief will be available on the sale of a second property if it has been your principal residence at any time in the past.

In general terms, it is only possible to have one principal residence at any time. However, since 1991, Principal Private Residence Relief has covered not only the period during which you have occupied a house as your main residence, but also the last 36 months of ownership, even if you were no longer living there.  The 36-month “extension” was designed to give you time to sell your home if you had bought and moved into a new home before selling the first one.

Changes to Capital Gains Tax

Last year, the 36 month period was reduced to 18 months.

The effect of the change is to increase the risk that Capital Gains Tax may be payable when you sell a house which has been your principal residence. The main risk is where you have difficulty in selling your home and have bought another property. If you have been absent from your home for an extended period this could also result in an exposure to tax.

The rules can be complex, especially if your main residence has also been let out at any time.  The rules also apply to trustees where a beneficiary of the trust occupies a trust property as his or her main residence.

Conclusion

Apart from the existing reliefs which should be sufficient to cover most situations, there are often ways in which an unexpected Capital Gains Tax liability can be mitigated. However, it is important to take advice early and, in any event, before you have sold your house.

Qualified experts can provide advice and often practical solutions to what is likely to be an unexpected and unwelcome problem.

Graham Scott, Private Client Partner