When you sell an asset such as a property, any profit you make (usually referred to as a ‘gain’) will be subject to the capital gains tax regime. However, if you are selling or giving away a property that you have lived in, you should be able to claim some Private Residence Relief (PPR).
The amount of relief you get will be calculated as follows:
Gain x (period you live in the property/ total period of ownership) = PPR
In addition, the final 18 months of ownership are treated as “deemed occupation”, i.e. as if you lived there, and therefore the last 18 months are also exempt. There are other exemptions for deemed occupation such as if you were absent from the house because you were employed or working elsewhere.
In addition to PPR, you may also be eligible for lettings relief because the property has been let out. Lettings relief is available for periods when the property was let for residential purposes, and when the property was not occupied or deemed to be occupied by you. This means you can’t have PPR and lettings relief for the same periods.
The maximum lettings relief you can claim is the lower of:
- the amount of private residence relief you qualify for
- the amount of profit you’ve made during the time your property was let out
- or £40,000.
Lettings relief cannot create a loss, but it can reduce a gain to zero.
Everyone is also entitled to an annual exemption each tax year. The annual exemption is like how the personal allowance works for income, in that gains within the annual exemption are tax-free. The annual exemption for 2018/19 is £11,700.
Any taxable gain on this property would be subject to the higher rates of capital gains tax of 18% and 28% because it is residential property.
Your local TaxAssist Accountant would be happy to discuss this with you in more detail and give you an estimate of your capital gains tax position. Please contact us for more information.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.