Do I Pay Capital Gains Tax When I Sell My Home?

Introduction

Good news: when you sell your main home, you won't usually pay Capital Gains Tax thanks to something called Private Residence Relief. However, if you own more than one property, have let part of your home out, or didn't live there for the entire time you owned it, you may have some tax to pay.

When you don't pay Capital Gains Tax

You don't pay Capital Gains Tax when you sell your home if all of the following conditions apply:

• You have one home and you've lived in it as your main home for all the time you've owned it
• You have not let part of it out (this doesn't include having a lodger)
• You have not used part of your home exclusively for business purposes (using a room as a temporary or occasional office doesn't count as exclusive business use)
• The grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
• You didn't buy it just to make a gain

When all these conditions are met, you automatically get Private Residence Relief and have no tax to pay. If any of these don't apply, you may need to pay some tax.

Important: Married couples and civil partners can only count one property as their main home at any one time.

Working out your gain

If you don't qualify for full Private Residence Relief, you'll need to work out your gain. Your gain is usually the difference between what you paid for your home and what you sold it for.

You must use the market value instead if:

• It was a gift
• You sold it for less than it was worth to help the buyer
• You inherited the property
• You owned it before April 1982

Deducting costs

You can deduct certain costs from your gain, including:

• Estate agents' and solicitors' fees
• Costs of improvement works, such as building an extension

Normal maintenance costs like decorating don't count. You also cannot deduct interest on a loan to buy your property.

Living away from your home

Even if you lived away from your home for some of the time you owned it, you may still get relief for certain periods.

Periods that always qualify for relief

No matter how many homes you own or where you lived at the time, you always get relief for the last 9 months before you sold your home, provided it was your main residence at some point while you owned it.

You'll also get relief for up to the first 2 years that you owned the home if it was being built, renovated, or you couldn't sell your old home, and you lived in it as your main residence within 2 years of owning it.

Additional periods of relief (if you have one home or nominated your home)

You get relief if you were away from your home for:

• Any reason for periods adding up to 3 years
• Up to 4 years if you had to live away from home in the UK for work
• Any period if you were working outside the UK

You must have lived in the home before and afterwards, unless your work prevented you.

Special circumstances: If you only own one home, you get relief for the last 36 months before you sold your home if you're disabled, in long-term residential care, or sold the property before 6 April 2014. You get relief for the last 18 months if you sold your home before 6 April 2020 but none of these circumstances apply.

Example

If you owned your home for 20 years and were away for 5 years (25% of the time), and the time you lived away wasn't during the last 9 months or another period that qualified for relief, the amount of gain you get relief on is reduced by 25%.

If you own more than one home

In most cases, you only get relief for one home for any period. You must work out when you lived in each property as your main home.

If you're married or in a civil partnership, only one home per couple counts as your main home for any period.

Nominating a home

If you own more than one property, you can nominate which one counts as your main home by writing to HMRC. Include the address of the home you want to nominate, and all owners of the property must sign the letter.

You must do this within 2 years every time your combination of homes changes.

Important: From 6 April 2015, you can only nominate an overseas property if you lived in it for at least 90 days in the tax year.

If you've nominated a home, you cannot get relief for another property during the time your home is nominated, except for the periods that always qualify for relief (such as the last 9 months).

Reporting and paying Capital Gains Tax

If you do have Capital Gains Tax to pay on the sale of your home, you must report and pay this within 60 days of completion.

HMRC provides an online calculator to help you work out if you need to pay Capital Gains Tax, though you cannot use this if you:

• Sold other chargeable assets in the tax year, such as shares
• Reduced your share of a property that you still jointly own
• Claim any reliefs other than Private Residence Relief or Letting Relief
• Are a company, agent, trustee or personal representative

If you let out your home

You may have to pay Capital Gains Tax if you've let out your home to a tenant. Having a lodger who shares your living space doesn't count as letting out your home.

Sources

• Tax when you sell your home

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.