Are you liable to Capital Gains Tax on your residential property?

Written by Arnold Hill on January 23, 2020

What is Capital Gains Tax?

Capital Gains Tax is a tax which is levied on the profit arising from a sale of your residential property. In several instances, reliefs may be available to reduce the gains chargeable.  

Principal Private Residence Relief

If you have ever occupied the property in question as your main residence, you may be permitted to Principal Private Residence (PPR) Relief. The amount of relief will depend on the number of years you have occupied that property in proportion to the number of years you have owned the property. If you have lived in the property for the entire time you have owned it, you are likely to be totally exempt from any capital gains tax.

Deemed Occupation

‘Number of years occupied’ includes both actual occupation and ‘deemed occupation’. Ways in which you may be deemed to have occupied without living in the property include:

  • Last 18 months of ownership always deemed occupied if the property has been your PPR.
  • Up to 4 years living elsewhere in the UK due to work obligations
  • Any amount of time working abroad

If you buy a property and it cannot be occupied immediately due to alterations, a period of up to one year will be treated as a ‘period of absence’, and will be treated as occupied. However, if the initial period of absence is greater than one year, then none of the initial period will generally qualify.

Lettings Relief

If you have let out your property, and this period of time is not covered under the deeming rules, you may be able to obtain lettings relief. Letting relief will be the lowest of:

  • The amount of Principal Private Residence relief
  • The amount gained on letting the property
  • £40,000

More than one residence

If you have more than one residence, you may nominate which property you would like as your Principal Private Residence so long as the property is elected within two years of occupying the property.

**note – married couples and civil partners may only have one PPR between them