There can be many reasons for deciding to sell the family home; a new job, moving to be in a different school catchment area, change of financial circumstances or even following the breakdown of a marriage. At times of significant upheaval, a family should quite rightly, focus on the practical, logistical, and emotional implications of a move. However, there may be tax considerations to be aware of with your house move too.
In many cases, there are no real Capital Gains Tax (CGT) concerns, when the property is sold, but there are exceptions, for example, where a property value has increased significantly over a period of time. The good news is there is a very valuable relief available in the form of Main Residence Relief.
Main Residence Relief effectively exempts any gain on the sale or gift of a former main residence from CGT being applied, providing the house has always been occupied as a main residence throughout the ownership period. Main Residence Relief is, however, a complex relief and there are many different inter-related rules so care must be taken to check the amount of Main Residence Relief available on the sale of a home.
The first thing to check, is whether the property has been occupied as a main residence over the entire period of ownership. If the property has been let out, occupied by family members (without ownership) or it has been vacant for a period, a taxable gain can crystallise on the sale which can catch you by surprise.
Any restrictions are calculated by defining the applicable time period. For example, a house was bought in 2012 for £100,000 and sold in 2022 for £200,000. A gain of £100,000 arises on sale. If the property has been occupied throughout the 10 years as a main residence, the full £100,000 is covered by Main Residence Relief and there is no CGT liability. If, however, the property has been let to third parties for 5 years and occupied as a main residence for 5 years, the Main Residence Relief is restricted to £50,000 (5/10 years) and £50,000 of gain is charged to CGT following the sale.
In circumstances where there has been a period that the property has not been occupied as a main residence, it is necessary to delve deeper and perhaps seek professional advice.
We have highlighted some of these considerations below:
- Has the property been elected as a Main Residence with HMRC?
This may be possible where a family has two properties available to be used as homes and providing a valid election has been made with HMRC. A married couple or civil partners living together can only have one main residence at any one time between them, so it is not possible to extend the relief to cover both homes. Where there is no election, there is a tricky job to ascertain which property was the main residence and at what time.
- Is special relief available as the owners were in job related accommodation or working abroad?
There are time limits to these extensions of the relief and often owners need to move back into the property as their main residence prior to sale for the relief to be available.
- Was the property unoccupied for a period due to substantial renovation on purchase?
- Did the owners move into a care home which resulted in the property being unoccupied?
If so, extra relief may cover a 36-month vacant period.
- Did one owner move out because of the breakdown of a marriage or civil partnership?
There are proposed changes for the transfer of assets in the process of a separation and divorce within the Finance Bill 2023, which we will be sure to outline when they take effect April 2023.
Where the additional reliefs are not available, and CGT is payable on the sale or gift of the former home, a Residential Property return needs to be submitted to HMRC within 60 days of completion. The process of gathering the information required to prepare the calculation and register a property account with HMRC can take time.
This is a complex area and we advise you to be prepared and to seek advice as early as possible, to ensure that you are aware of all tax considerations when selling your family home.
