Most people who sell the home they live in pay no Capital Gains Tax, but a move can complicate that: a new home bought before the old one sells, a year renting out the old place, or a job abroad. This article summarises GOV.UK’s “Tax when you sell your home” guide from HM Revenue and Customs (HMRC) on Private Residence Relief. The rules apply to UK residents selling UK homes, with different rules for people who are not UK resident for tax. It is general information, not tax advice.
When no tax is due
GOV.UK says no Capital Gains Tax is paid on selling a home if all of the following apply: there is one home that has been the main home for all the time it has been owned; no part has been let out (a lodger does not count); no part has been used exclusively for business (a temporary or occasional home office does not count); the grounds and buildings total less than 5,000 square metres; and the home was not bought just to make a gain. In that case Private Residence Relief applies automatically. Married couples and civil partners can count only one property as their main home at any one time. If any of the conditions fails, some tax may be due.
Periods that always qualify during a move
The guide says relief is always given for the last 9 months before the home was sold, however many homes are owned and wherever the owner was living, provided the property was the only or main residence at some point during ownership. That covers the common case of moving out before the sale completes. Relief is also given for up to the first 2 years of owning a home if it was being built or renovated, or the owner could not sell their old home, and the owner lived in it as their only or main residence within 2 years of buying. These periods count even if a different home was nominated as the main one.
The timing of the sale itself, and when keys change hands, is covered in the guide to exchange and completion.
Owning two homes at once
In most cases relief is given for only one home for any period, so someone who buys a new home before selling the old one must work out when each was the main residence. A home can be nominated by writing to HMRC with the address; every owner must sign the letter. GOV.UK says the nomination must be made within 2 years every time the combination of homes changes, and that no relief is available for another property during the nominated period, apart from the periods that always qualify. Without a nomination, the time spent living away from the home must be worked out. For couples, only one home counts at any time. The stamp duty side of overlapping ownership is covered in the guide to buying before selling.
Living away or letting out the home
Where a home is the only or nominated home, relief continues for absences of any reason adding up to 3 years, up to 4 years if the owner had to live away within the UK for work, and for any period working outside the UK. The owner must have lived there before and afterwards unless work prevented it. If none of those apply, relief is reduced in proportion: in GOV.UK’s example, 5 years away out of 20 reduces the gain covered by 25%.
Letting changes the calculation. A lodger sharing living space, or children or parents living in the home and paying rent or housekeeping, is not treated as letting. For a genuine tenancy, relief covers the years of residence plus the last 9 months. In the guide’s example, a home owned for 15 years and lived in for 7.5 gets relief for 8.25 years, or 55%, leaving 45% of the gain chargeable. Letting Relief is available where the owner lived in the home at the same time as the tenants, limited to the lowest of the Private Residence Relief received, £40,000, or the chargeable gain from the let part.
Working out the gain and reporting it
The gain is usually the sale price minus the purchase price, using market value in some cases, including gifts and sales for less than the home was worth to help the buyer. The guide says estate agents’ and solicitors’ fees can be deducted, along with improvement costs such as an extension, but normal maintenance like decorating cannot, and neither can loan interest. Where Capital Gains Tax is due, GOV.UK says it must be reported and paid within 60 days on most sales of UK property. Budgeting for the fees that can reduce a gain is part of planning the overall moving budget.
The bottom line
Selling a home that has always been the only main residence leaves no Capital Gains Tax to pay, and moves are helped by automatic relief for the last 9 months of ownership and, in some cases, the first 2 years. Overlapping homes, long absences and lettings can leave part of the gain chargeable, and a tax due must be reported and paid within 60 days. Writing down dates of living in each property and nominating a main home in time keeps the position clear.
Sources
- Tax when you sell your home, HM Revenue and Customs (gov.uk)
- Tax when you sell your home: living away from your home, HM Revenue and Customs (gov.uk)
- Tax when you sell your home: if you let out your home, HM Revenue and Customs (gov.uk)
- Tax when you sell your home: nominating a home, HM Revenue and Customs (gov.uk)
- Tax when you sell your home: work out your gain, HM Revenue and Customs (gov.uk)