Capital Gains Tax relief on your own home

You don't usually have to pay Capital Gains Tax when you sell or dispose of your own home. This is because you get a relief called Private Residence Relief. You may have to pay Capital Gains Tax if you own more than one home or you use your home for business purposes.

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What is Private Residence Relief?

When you sell or dispose of your own home you won't have to pay any Capital Gains Tax if you satisfy two conditions. For the whole time you've owned it both the following must apply:

  • it's been your only home or main residence
  • you have used it as your home and nothing else

You may qualify for this relief if you sell part of the garden without selling your home at the same time.

Working out the relief

To work out the relief, you need to work out the period that you've owned your home for. This starts on the later of:

  • the date you bought or acquired it
  • 31 March 1982

It ends on the date that you sell or dispose of it.

The final 3 years (36 months) always qualify for relief. This applies even if you weren't living there during the final 3 years. It must have been your only or main home at some point during the time that you've owned it.

In his Autumn 2013 statement the Chancellor announced that from 6 April 2014 (tax year 2014 to 2015) this final period relief will only apply to the final 18 months of ownership. There will be an exception for people who are disabled or in long-term care. This measure is set to become law later in 2014.

Restrictions to the relief

You might not get the full amount of relief if:

  • the garden or grounds, including the site of the house, are larger than 5,000 square metres (roughly the size of a football pitch)
  • you've used any part of your home exclusively for business purposes
  • you've let out all or part of your home (or taken in more than one lodger at a time). But you may be entitled to Letting Relief instead - see the section 'Letting all or part of your home' below
  • the main reason you bought it was to make a profit from a quick sale

You don't have to claim Private Residence Relief - it's given automatically. You may have to show the amount of relief due on your Self Assessment tax return if you normally complete one.

Losses on the sale of your home

If you qualify for Private Residence Relief but you make a loss on the sale or disposal of your home, it's not an allowable loss. You won't be able to set that loss off against other gains.

If only part of your home qualified for Private Residence Relief then you may be able to claim for any loss on the part that didn't qualify.

What to do if you've made a loss

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Absences from your home

Even if you didn't live in your home for all of the time that you owned it, you may still be entitled to the full amount of Private Residence Relief.

Absences when you first buy your home

You may still be able to get the full relief if you can't move into your home immediately when you first buy it. For example if you can't sell your old home or you need to refurbish your new home. If you move in within 12 months you'll still get the full relief. This may be extended to 2 years in exceptional circumstances.

Absences as you've moved out of your home

You may still get the full relief even if you didn't live in your home all of the time that you owned it. The final 3 years (36 months) that you own it will be treated as if you lived there, even if you didn't. The property must have been your only or main home at some time during the time that you owned it.

In his Autumn 2013 statement the Chancellor announced that from 2014 to 2015 this final period relief will only apply to the final 18 months of ownership. There will be an exception for people who are disabled or in long-term care. This measure is set to become law later in 2014.

Working away from home

You'll still get the full relief if you couldn't live in your home because you were employed and either:

  • you carried on all of your work or duties outside the UK
  • the distance from work or the requirements of your job stopped you living at home - and you were absent for less than 4 years

The following must also apply:

  • the house was your only or main home both before and after you worked away
  • you were not entitled to Private Residence Relief on any other property during that time (see 'Owning more than one home' below if you're unsure)

If you can't return to live in the house because your job still requires you to work away, you'll get the full amount of relief.

See the section 'Living away from home' below if you were absent for other reasons.

Example

You bought a house in 1997 and used it as your main home.

Your employer sent you to work abroad in 1998.

You returned to your main home in 2003 and lived in it until you sold it in 2014.

You're entitled to full Private Residence Relief as your absence was because you had to work abroad.

Living away from home

You'll still get the full amount of relief if you were absent from your home, but not working away, if all of the following apply:

  • you weren't living away from home for more than 3 years in total
  • you're not entitled to Private Residence Relief on any other property during that time (see 'Owning more than one home' below if you're unsure)
  • the house has been your only or main home both before and after you lived elsewhere

Download the latest helpsheet on Private Residence Relief - Helpsheet 283 (PDF 96K)

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Using your home for business purposes

You might work at home, running your business from there. You can still get the full amount of the relief as long as you keep using all of your house as a home. For example, the room you use as an office may also be used as a guest bedroom.

If any part of your home is used exclusively for business purposes, you'll have to work out if there's any Capital Gains Tax to pay. For example, if part of your home is used as a joiner's workshop.

Example

You use 25% of your home as business premises and 75% as your living area.

You sell your home making a gain of £100,000.

You'd be entitled to Private Residence Relief of £75,000 on the part used as your home (75% of £100,000).

You'd have to work out the Capital Gains Tax due on the remaining gain of £25,000 (£100,000 less £75,000).

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Letting all or part of your home

If you've let out all or part of your home you may not get full Private Residence Relief when you sell or dispose of it. But you may get another relief known as 'Letting Relief'.

The maximum amount of Letting Relief due is the lower of:

  • £40,000
  • the amount of Private Residence Relief due
  • the amount of gain you've made on the let part of the property

Example

You used 60% of your house as your home and let out the other 40%.

You sell the property, making a gain of £60,000.

You're entitled to Private Residence Relief of £36,000 on the part used as your home (60% of the £60,000 gain).

The remaining gain on the part of your home that's been let is £24,000.

The maximum Letting Relief due is £24,000 as this is the lower of:

  • £40,000
  • £36,000 (the Private Residence Relief due)
  • £24,000 (the gain on the part of the property that's been let)

There's no Capital Gains Tax to pay - the gain of £60,000 is covered by the £36,000 Private Residence Relief and the £24,000 Letting Relief.

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Owning more than one home

If you live in - not just own - more than one property you can 'nominate' one as your main home. Write to HM Revenue & Customs (HMRC) to tell them which one you nominate as your main home. You must sign your nomination. See the link below to contact HMRC.

You must make your nomination within 2 years of the date from which you change the number of properties you live in. You should make a new nomination whenever the number of homes you live in changes.

For example, you buy a second home in May 2013. You can nominate either this or your usual home as your main home, but you must do so by May 2015.

HMRC will decide which property to treat as your main home based on the facts, unless you tell them which you nominate. This may affect the amount of Capital Gains Tax you have to pay.

If you're married or in a civil partnership and own 2 or more homes between you, any nomination must be made jointly. It must be signed by both of you. You're only entitled to Private Residence Relief on one home between you.

Write to HMRC

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Owning a property used by a relative

If you buy a house for a relative to live in and don't live in it yourself, you won't usually get Private Residence Relief when you sell or dispose of it.

But, if you bought the property before 5 April 1988, you may get Private Residence Relief if it was purchased for:

  • an infirm relative unable to live independently
  • a mother or mother-in-law who is no longer living with her husband

There are other criteria you need to meet. You can find more information by following the link below.

The relief does not apply for a father or father-in-law and was withdrawn for purchases after 5 April 1988.

Download the latest helpsheet on Private Residence Relief - Helpsheet 283 (PDF 96K)

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More useful links

How to calculate capital gains on property

How and when to report a capital gain

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