Gaining from Capital Gains – choose your residence carefully

Published by Jo White on 29 August 2019

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Most people believe that when they sell their home any increase in value is exempt from Capital Gains Tax. This is generally the case when you have always lived in the property as your main residence, but there can be situations where some tax may be payable, so good tax planning could mean significant savings.

If a property has ever been your main residence for tax purposes, the last 18 months (reducing to 9 months from April 2020) of ownership are automatically exempt from Capital Gains Tax. Plus, gains relating to periods when you do not actually live in the property could be exempt from tax.

So, you could buy a property, live in it as your main residence, move out, live elsewhere for 18 months, sell the property and the gain would be exempt from tax. There are also other exemptions for periods where you moved out of the property for any reason before returning again.

However, do note that for properties with land of more than 0.5 hectares (approximately 1.2 acres), any land not required for the reasonable enjoyment of the property will be subject to tax.

If you have more than one property, for example your main house and a holiday or weekend retreat, it is possible to elect which one is your main residence for tax purposes. You have a two year period during which an election can be made and, once chosen, it can be varied as many times as you like.

Where a property has been your main residence and you let it out – the gain relating to the period when the property is let may not be liable for Capital Gains Tax. This ‘lettings relief’ could exempt up to £40,000 from Capital Gains Tax – and this exemption is per owner, not per property, so if the property is in joint names £80,000 of gain could be exempt. From April 2020 a claim for lettings relief will be significantly restricted to periods where you have occupied the property with your tenants. Where you are looking at selling your property that qualifies for lettings relief, you may wish to accelerate your plans.

Making a main residence election can give significant tax savings, but careful planning is required to ensure the benefit is maximised and no unintended tax issues arise. Before proceeding with any tax planning, seek professional advice.

For further information please speak with your usual Kreston Reeves adviser here, or contact Jo White here or on +44 (0)330 124 1399 who would be pleased to have a no-obligation initial meeting with you.

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