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Capital Gains Tax
A gain made on the main residence of an individual or joint owners may be exempt
from Capital Gains Tax (CGT). A married couple can only have one main residence
at any time - tax law does not reward marriage.
Moving house
Sometimes people own two houses while they are moving, and the tax rules are
designed to allow for this. A house can be exempt from CGT for 12 (or
exceptionally 24) months before you move in, and 36 months after you move out.
The tax rule (TCGA 1992 s 223(2)) actually exempts from CGT the last 36 months of ownership of any property which has been a main residence.
Insurance cover
Many insurance policies restrict cover if a house is not occupied for more than
30 days, so you may need special cover.
Which house?
If you had a large family home in the country which you lived in on occasional
weekends and a small town flat for more than the working week, which would be
your main residence? There is no set answer so you can choose by
submitting a written election (under TCGA 1992 s222(5)a) to your tax inspector
within two years of acquisition or starting to use a second property as your
residence.
Holiday home?
If you have a holiday home, it might become your residence for a
time. The period that you need to occupy a property for it to become your residence is not defined, but is probably a minimum of 3 months. If
your holiday home does become your residence, then it could be very
beneficial to submit an election that it be treated as your main residence, because it will then attract
CGT exemption for the last 36 months of ownership, even though you did not
occupy it then.
Whenever you change your place of residence, you normally tell your friends and others who might want to write to you, such as the Inland Revenue. Such actions would help convince an Inspector that the facts are in accordance with your formal election.
Property abroad?
If you are a UK resident, you will be subject to Income Tax and CGT on your
worldwide income, including a holiday home overseas. Becoming non UK
resident for CGT purposes may take 5 years, but you may be able to exempt a
significant gain on an overseas holiday home by taking up residence for a much
shorter time.
A garden plot?
If your main residence has a large garden, you might be able to sell part as a
building plot. If your total original plot was less than 1/2 hectare (a
little more than 1 acre) then the sale proceeds of the building plot should be CGT
exempt.
If you make the mistake of selling your house before the building plot, the exemption will not apply because the plot will not be part of your garden at the date of sale.
If your total original plot was more than 1/2 hectare, you might be able to claim the whole garden is exempt from CGT as being required for the reasonable enjoyment of the property. If you sell part as a building plot, do not expect to claim the exemption - your sale will prove it is not true. You could consider selling another part of the garden first, or selling the whole property.
Professional advice
This is a complicated area and we strongly advise that you take professional
advice to determine whether the general rules outlined above apply in your specific
circumstances.
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 23 May 2008.