Most people buy and sell the property they reside in without any thoughts about tax, apart from perhaps Stamp Duty Land Tax. However, there are some circumstances in which selling the property you reside in can cause some tax issues. Some of the main ones are:
- Where you own more than 0.5 of a hectare of land. If you have a large amount of land, capital gains tax may apply to land in excess of 0.5 of a hectare which is about 1 acre. Large areas of land will be exempt if they are ‘necessary to the enjoyment’ of the property as a whole.
- Where the property has been let for a long period. The current law exempts private residence from capital gains tax on a ‘time’ basis, so if the property has been let for 10 years and lived in for 10 years, the gain is apportioned. However, the last 3 years are treated as exempt, so in the above example, only 7/20 of the gain would be subject to capital gains tax. There are other circumstances in which periods of non-occupation can be exempt, such as when working abroad.
- Where the property is used wholly or in part for business purposes. In this case, the chargeable gain is usually calculated by reference to the proportion of the property used for business and the period of time over which it is used. Where the business is furnished holiday lettings, capital gains tax rollover relief may be available. In some circumstances, taper relief on the business proportion may be available.
- Where there are two or more deposits. If the property and land are being sold separately then capital gains tax may have a large impact on the land sale. In most cases where a property and land are attached, it is advisable to sell them separately and to sell any land before selling the property, but take advice in every case to avoid tax pitfalls.
- Where the property has been used for ‘hobby farming’, the gain which is exempted by the application of Agricultural Property Relief may be restricted.
- Where more than 1 property is owned. A couple can only have one capital gains tax exemption of Principal Private Residence, so if you own 2 properties, you should generally elect for the property with the higher potential capital gain to be chosen as the Principal Private Residence. The election must be lodged within a strict time limit, so it makes sense to consider this when purchasing a second property.
If you require any legal advice relating to property purchases or selling, then please do not hesitate to contact us on 01536 276300 or email firstname.lastname@example.org