Main residence relief – Am I eligible?

When you sell/dispose of a house (in its whole or in part), or even a portion of a garden attached to your property, you are often liable to pay capital gains tax (CGT) on any gain generated from the sale. However, if you meet certain criteria, you may be eligible for full CGT reduction under a tax provision known as main residence relief.

• What is the main residence relief, and how it works?
• Partial main residence relief
• If you made a loss at the time of property disposal
• Who is eligible for main residence relief?
• Tax when you sell your second house
• How to calculate main residence relief?
• Are you eligible for claiming main residence relief and letting relief?
• Reporting to HMRC

What is the main residence relief, and how it works?

Main residence relief, also known as private residence relief (PRR), is a capital gains tax deduction that is applied automatically when you sell property in the United Kingdom. To qualify for the full relief, the property must be your primary residence (you may also qualify if you sell or dispose of a residence you offered to a dependent person).

Generally, capital gains tax is required on any gain derived from the disposal of:

1. A dwelling that must be your primary residence (which may include a house, flat, fixed caravan, or houseboat).
2. A portion of a principal dwelling or residence.
3. A portion of a garden connected to your dwelling.

However, you will be entitled to complete relief if the following conditions are met:

1. The dwelling has been your primary or sole residence throughout your ownership.
2. Except for any permitted absences or while residing in employment-related housing, you have not been absent from your property during your period of property ownership.
3. Since you owned the house, no part of it has been utilised entirely for business purposes - this includes working from home in a room that is not used exclusively for business.
4. The grounds and gardens - including any structures erected on them - do not exceed the permitted space.

If you meet all of these criteria, you can avoid paying capital gains tax on any proceeds from the sale of your property. As long as you have not made any more disposals and do not intend to make any other capital gains claims, you are not obliged to complete the capital gains tax summary portions of your tax return.

Partial main residence relief

Even if you do not match all of the above criteria for full main residence relief, you may still be eligible for partial relief in certain circumstances. To determine your eligibility for partial main residence relief, you must complete the CGT summary pages, which will determine your eligibility for relief.

Even if you meet all of the above criteria, you will not qualify for main residence relief if you –

1. Acquire a property/dwelling and/or invest in it with the purpose of gaining from its sale.
2. Sell all or a portion of the attached garden when you sell the house.

If you made a loss at the time of property disposal

If you incur a loss on the sale of your home and would otherwise qualify for main residence relief, the loss does not become an allowable loss and cannot be adjusted against any other profits.The same holds true for partial relief eligibility and partial loss; that portion of your loss should be computed similarly to how partial relief would have been calculated if you had made a gain.

Who is eligible for main residence relief?

Any individual is eligible for relief on any gain from the disposal of their primary or sole residence.

1. They satisfy the abovementioned conditions.
2. In computing the gain that would otherwise be taxable, no Gift Hold-Over Relief (obtained by any person from the previous disposal) would need to be accounted for under section 260 of the Taxation of Chargeable Gains Act 1992.

Where Gift Hold-Over Relief was granted for a transfer prior to 10 December 2003, unique transitional provisions may permit main residence relief to continue to apply. Claims for relief under such transitional provisions must be made specifically.

Individuals are eligible for main residence relief if they own the freehold of their home or are tenants with a lease. Individuals who co-own a lease or freehold with another individual are also eligible for relief. From 6 April 2015, any non-resident who sells (or otherwise disposes of) a portion or the entire of a UK residential property must notify HMRC within 30 days of the conveyance and may be legally bound to pay capital gains tax on any gains.

Tax when you sell your second house

As previously stated, when you sell a second house whose value has increased, you have achieved a gain. The gain is taxable in the eyes of HMRC — this is capital gains tax.

However, some factors may indicate that you can obtain some relief:

1. If the property served as your primary residence at any point in time.
2. If you rented out a portion or all of your property.
3. The grounds are little less than 5,000 square metres in size.

How to calculate main residence relief?

As a landlord, the amount of relief available to you is determined by the profit you make on the sale of your property and the length of time you've lived there.

You will always have complete relief for the following:

1. The years you lived in the home.
2. The last nine months you owned it – even if you weren't a resident at the time.

Are you eligible for claiming main residence relief and letting relief?

After April 2020, only landlords who share occupancy with tenants will be eligible for Letting Relief.

Due to the fact that this only applies if you rent out a portion of your home and live in it as your primary residence, you can claim both main Residence and Letting Relief when you sell your home.To calculate Letting Relief, you must first determine the percentage of your home that is rented out. If you qualify, you may be able to claim up to £40,000 in Letting Relief.

Reporting to HMRC

Once you've determined your eligibility for relief, you must declare any capital gains tax to HMRC by 31 January of each year.

Conclusion

Taxation is a complicated subject, and it is recommended that you consult a specialist property expert/advisor regarding your circumstances. For a more in-depth look at the complexities of main residence relief law or in case you're considering selling your house, contact dns accountants to know how we can help.

In case you have any queries or want specialist advice on "Main Residence relief", kindly call us on 03330886686, or you can also e-mail us at enquiry@dnsaccountants.co.uk.

Disclaimer :-"This article was correct at the date of publication. It is intended for general purposes only and does not constitute legal or professional advice. Independent professional advice should be sought before proceeding with any transaction".

About the author

Owais Bombaywala
Working closely with individuals and businesses to help grow their business requires a significant amount of experience and industry knowledge. Owais is BA (Hons) Accounting and Finance and Member of ACCA. Besides being a compliance champion, he specialises in Property tax planning. With over 7 years of experience in Accountancy and Tax world, our clients count on us to give them timely and up to date advise to help them make the right move. Owais works closely with some of the DNS’s most valued clients to give them the confidence they need to focus on their business. He is known for his calm nature and proactive approach. At DNS, we proud to be a modern and client centric firm. Our advise doesn’t just look at what’s best for your business moreover our aim is to help you achieve your personal goals. Away from work, he resolve family disputes and provide care and support to elderly people. He is a founding member of Human welfare organisation Hounslow.