Private residence exemption
September 2008
It is a well-known fact that you can sell your home and pay no tax on any profit you may make on its sale. Unfortunately there are circumstances where this golden rule may not apply. We have listed below a number of circumstances when a sale of your home may trigger a tax charge, and how to minimise or avoid any possible tax due.
Selling part of your garden.
Any land surrounding the house including the house itself, is also eligible for the principal private residence relief. The permitted area is 0.5 hectares. If the area of your property is greater than this it is still possible to avoid tax on a part disposal of the land, if larger grounds are required for the reasonable enjoyment of the dwelling house.
It is not possible to make a disposal of the garden after the building has been sold and avoid capital gains tax using the principal private residence exemption.
More than one property.
An individual can only have one property eligible for the private residence exemption. If more than one property is owned it is possible to elect whichever property should be considered your principal or main residence. Married couples and couples entering into a civil partnership are treated as one person for the private residence exemption. Accordingly they can only have one principal private residence between them.
Occupation of Private residence.
Apart from periods when you actually live in a property, the following additional periods are also deemed to be included; the last 36 months of ownership, and, periods of absence not exceeding three years (for instance if you are required to work abroad). Practically this means you could rent your home after moving out and still make no taxable gain as long as you sell within the final three-year period of ownership.
Lettings relief.
If you rent out a room in your house under the rent-a-room scheme the private residence relief is still available when you sell the house. If you rent out the whole house or a suite of rooms there will be a reduction in the private residence relief you can claim. You could also be eligible for lettings relief. The maximum you can claim is £40,000. If your home is owned jointly with your spouse you are both entitled to the relief and can therefore claim a maximum of £80,000.
