Capital Gains Tax Exemption Periods on Property Sales

Many of us are aware that when you sell your main dwelling home it is free of capital gains tax provided you have not rented it out or lived in another property as your main dwelling for a sustained period.  This tax free incentive is known as Private Residence Relief (PRR).  The rules:

• One main home, lived in it as main home consistently for the whole period of ownership.   You can own a 2^nd home but this must be designated as such with HMRC for your first property to be CGT free.
• Not used part of your home for business purposes (a temporary or part-time at home office is OK).
• You can take in a lodger and rent a room in your home but your main home must remain as your main dwelling.  You cannot leave the lodger living on their own for long periods.
• The first 5,000 square metres of your home’s ‘footprint’ including gardens is CGT free.  If you own a bigger plot or have land/fields attached, excess will not be CGT free and you will need to apportion it.
• Married couples and civil partners can only have one main dwelling between them.  A married couple/civil partnership cannot move in together having had their own separate homes and claim PRR on both properties.

If you do not qualify for the above, e.g., it was a 2^nd home (or was for a period) or you have let the property, the 2^nd property will be subject to CGT on sale.

Working Out the Gain

The gain is the sale price less purchase price and associated costs of buying and selling such as estate agents’ and solicitors’ fees as well as costs of improvement work, for example for a new extension – but not maintenance costs.

If your property does not fully qualify for PRR, there are several rules to follow:

• If the property was always a 2^nd home or always rented out, then the gain it is subject to CGT in full.
• If the property is or was your main dwelling for a period e.g., owned for 20 years but lived in as main residence for 10 years and rented out for 10 years, then usually half of the gain is subject to CGT.
• From April 2020, the last 9 months of ownership (used to be 36 months until 2014 and then 18 months from 2014 to 2020) is subject to relief but:
• If the property was your main home for the first 10 years and then rented for the last period of ownership e.g., 10 years (as you had moved to another main dwelling), then the 9 months exemption is included for relief on top of the 10 years of 1^st main dwelling ownership i.e., 10 years 9 months and the charge to gains in proportion is made for 9 years, 3 months.
• If the property was your main home for first 5 years and then rented for years 6-15 and then your main home again for the last 5 years of ownership, then the last 9 months exemption is already included for relief in your total 10 years of main dwelling ownership i.e., 10 years exempt and the charge to gains in proportion is also 10 years.

Disabled Persons plus Long-term Residential Care Residents

As mentioned above, the last 9 months of ownership is exempt for most people provided the property was your main residence at some point but, if you are disabled or are in long-term residential care, you still get relief for the last 36 months of ownership before you sell the property meaning:

• If the property was your main home for the first 10 years and then rented for the last period of ownership e.g., 10 years (as you had moved to another main dwelling), then the 36 months exemption is included for relief on top of the 10 years of 1^st main dwelling ownership i.e., 13 years and the charge to gains in proportion is made for 7 years.
• If the property was your main home for first 5 years and then rented for years 6-15 and then your main home again for the last 5 years of ownership, then the last 36 months exemption is already included for relief in your total 10 years of main dwelling ownership i.e., 10 years exempt and the charge to gains in proportion is also 10 years.

Capital Gains Tax Rates 2024/25

£3,000 annual capital gains tax allowance with CGT rates of 18% for property gains when added to income are still within basic rate tax band and 24% for property gains when added to income are in the higher rate tax band.

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