Capital Gains Tax and Property

Private Residence Relief

Your home is usually exempt from any Capital Gains Tax. This is known as Private Residence Relief.

Private Residence Relief and Second Homes

If you have two houses, you can choose which property can benefit from Private Residence Relief. However, if HMRC are not informed of your choice about which property will be exempt within two years of the purchase of the second property, then they will decide which one receives the Private Residence Relief.

Anyone with more than one home can make an election to determine which home should be treated as the main residence. The election must be made within two years of the acquisition of an additional residence. The date of acquisition of an additional residence is not necessarily the date of purchase of that property. A property owner may acquire an additional residence when a property that the owner previously let begins to be used as a residence of the owner.

When a married couple, or civil partners, live together, they can only claim the exemption for one property at a time.

Property owners can only make an election if they are using both properties as their residence. i.e. living in them.

Capital Gains Tax and Second Homes

Normally the sale of a second home would be subject to CGT. However, the amount of gain can be reduced if the period of absence is:

  • Any period before April 1982.
  • Periods of absence totalling three years as long as there is a period of residence either side.
  • The last 18 months of ownership, if the property was the individual’s principal property at some point.
  • Periods of up to four years if absence due to working elsewhere in the UK or abroad, so long as you lived in the property before and after the absence and have not claimed Private Residence Relief on another property.
  • Up to one year from the initial purchase of the property.
  • Any period if living in job related accommodation where there is a clear intention to return to the property.

Capital Gains Tax and Property Letting

Where someone lets part of their main residence, that part may be subject to Capital Gains Tax. There is, however, a special Letting Exemption where it is let for residential use.

Where part of a house is used exclusively for business purposes, the exemption will not apply to that section. If however, part of a home is used for business (e.g. a bedroom used as an office) and also partly for personal, use no restrictions apply.

Each owner is entitled to a residential letting exemption of up to £40,000. Where a couple own a property jointly, up to £80,000 of gain attributable to residential letting is exempt.