Capital Gains Tax And The Family Home

At Ahaccountants, we understand how important it is to make the most of the tax relief available when selling your family home. It can be one of the most valuable tax benefits you’ll encounter, but sometimes, a little planning goes a long way to make sure you don’t miss out. If you’re in the Nottingham area, we’d love to help you navigate principal private residence (PPR) relief and ensure you maximize the opportunity.

Capital Gains Tax (CGT) and Your Home

When you sell your main home, you can usually take advantage of CGT relief, which means you won’t have to pay tax on any gain from the sale. This is a huge benefit for most people, but there are some situations where the relief might not cover everything. Here’s how it works:

Key Things You Need to Know

• It must be your residence: Only a property you’ve lived in as your main home can qualify for the relief. Investment properties, where you’ve never lived, won’t be eligible.
• Land and outbuildings: If you have extra land or outbuildings used with your home, the relief may apply, but only up to a certain size—about 1.25 acres. If you have more land, it needs to be necessary for enjoying your home (and that can be a tricky test).
• You need to actually live there: Simply staying in the property for a short period to try and claim the relief won’t work. It needs to feel like home.

Selling Part of Your Garden?

Thinking of selling off part of your garden for someone to build on? If your home and garden combined are under the 1.25-acre limit, the relief should still apply. But if your total land exceeds that limit, it can get complicated.

Also, if you sell part of your garden later, after you’ve sold the house, it might not qualify for the relief at all.

Owning More Than One Home

If you own more than one home, you can only claim PPR relief on one property at a time. This applies to married couples or civil partners too—you can only have one main home between you for tax purposes. If you have more than one home, you can choose which one benefits from the relief, but you must let HMRC know within two years of buying the second property.

If you don’t make that election, HMRC will decide for you based on where you spend most of your time.

Example: Wayne’s Two Homes

Wayne bought his first home in 2009 and lived there full-time. In 2013, he bought a second home and split his time between both properties. He decides to elect the second home as his main residence for tax purposes. In 2024, he sells both properties, making a £100,000 gain on the first home and a £150,000 gain on the second.

Because Wayne made the election, the gain on the second home is CGT-free. For the first home, he can claim relief for the time it was his only residence and the last nine months of ownership, as long as it was his main home during that time. The rest of the gain will be subject to CGT.

Working from Home?

More and more people are working from home these days. If you use part of your home exclusively for business (like a dedicated office space), that part of your home won’t qualify for the CGT relief when you sell. However, if the space is shared (e.g., an office that’s also a guest room), you’re likely still in the clear.

Letting Relief

Before April 2020, letting relief allowed homeowners to get up to £40,000 in relief (£80,000 for couples) if they rented out a part of their home that used to be their main residence. Now, this relief is only available if the owner and tenant live in the property at the same time.

New CGT Reporting Rules

If you sell a residential property and it’s not fully covered by PPR relief, you need to report the sale to HMRC and pay the tax due within 60 days of completion. This is a new rule introduced in April 2020, so make sure to keep it in mind if you’re planning to sell.

Periods of Absence

If you’ve had to leave your home for work (either within the UK or abroad), you might still qualify for PPR relief during your time away, depending on how long you were gone. Each situation is different, so feel free to ask us if this applies to you.

How We Can Help

Navigating the rules around CGT and your family home can be tricky, but Ahaccountants is here to help. We can work with you to plan ahead, identify any potential issues, and make sure you’re taking full advantage of the available relief. If you’re in the Nottingham area and have any questions about capital gains tax or would like advice tailored to your situation, don’t hesitate to get in touch!