Private residence relief allows most homeowners to sell their homes without being liable for any capital gains tax on property profits. Private residence relief may also help you reduce your capital gains tax liabilities when selling a second home or selling off part of your garden
Qualifying for private residence relief
You normally qualify for private residence relief when you sell your only or main home and/or part of your gardens or grounds. You may not qualify for full private residence relief if:
- you bought the property with the intention of selling it for a profit;
- any part of your home or grounds are used primarily for business — you may be liable for capital gains tax on property profits for that share of the property;
- your plot size exceeds half a hectare (ie 5,000 square metres);
- your grounds are farmland.
Planning for capital gains tax on property
If you have more than one home, when you sell a property you may not be entitled to full private residence relief. The percentage depends on for how much of the time that home has been your private residence. This can be affected by:
- which home you nominate as your main residence (you can do this up to two years after acquiring the additional home) or which home you in fact use as your main residence
- periods of absence — though some absences, such as initial refurbishment or working abroad will not normally count
- whether the home was ever your main residence — in which case the last 18 months of ownership qualify for relief regardless
- whether part or all of the home was ever let (for residential use) — in which case a further letting relief may apply
Proper planning for capital gains tax on property sales can maximise the level of private residence relief when you have more than one property.
If you plan to sell off part of the garden, it’s important to note that private residence relief only applies if the gardens have not yet been separated off and development has not started. Otherwise full capital gains tax on property gains can be charged.
Finally, couples should note that married couples (and civil partners) are only entitled to one main residence between them (unless genuinely separated). If you each own a home from before you were married, you have two years to nominate your main residence — with potentially large implications for capital gains tax on property sales in the future.