…is his castle, so they say. Castles may be scare these days but your home is still likely to be your most valuable asset, so should you want to sell it, it is worth considering the tax implications.

If you sell a property, the whole of which has been your only residence throughout the period that you have owned it, then the position is simple – the gain will be exempt from capital gains tax (CGT), so no tax will be payable on it. This is called the “principal private residence” (PPR) exemption which covers the house plus garden, a total area of up to ½ a hectare.

So far, so straightforward – however, if you have used part of the property for a purpose other than as your residence, or if you have not occupied the property for the whole period of ownership then the position becomes more complicated.

If any part of the property is used exclusively for business purposes – such as a treatment room – then the gain attaching to that part of the property (apportioned by area) will not be covered by the PPR exemption and will be taxable. This rule doe not catch the “home office”, as long as the room is also used for non-business purposes.

Similarly if you have not lived in the property during the entire period of ownership, part of the gain (on a time-apportioned basis) is potentially not covered by the PPR exemption. However certain periods of non-occupation are treated as periods of “deemed occupation” so continue to be covered by the exemption – as follows:

1. The last 3 years of ownership of a property will be covered by the PPR exemption even if you did not occupy the property during that time as long as the property was, at some time, your main (or only) residence. This will apply even if during that period you are living in another property for which you will claim the PPR exemption.
2. A period (or periods) of non-occupation not exceeding 3 years in total
3. A period (or periods) of up to 4 years when occupation of the property was prevented due to employment elsewhere in the UK
4. A period (or periods) of non-occupation for any length of time due to employment outside the UK

In the case of b) – d) the property must have been your only (or main) residence both before and after the period(s) of non-occupation in order for these periods to be deemed occupation.

If after the above there is a period to which the PPR exemption does not apply then that part of the gain will be taxable unless the property was let out at some point, in which case, “lettings relief” applies, the amount of which is the lowest of:

• The amount of gain remaining chargeable after the PPR exemption has been applied
• An amount equal to the PPR relief
• £40,000

But what if you have more than one property? If you in fact reside in more than one property – perhaps one in the week and one at weekends – then you can make an election to determine which property is your “main” residence for the purposes of applying the PPR exemption on a sale. An election cannot be made in respect of a property which is not your residence – ownership of the property is not sufficient.

In the absence of an election HMRC will determine, when you sell a property, whether that one was – or was not – your main residence, for the purpose of applying the exemption, based on the circumstances. Spouses are treated as having the same main residence as long as they are not separated.

An election must be made within 2 years of first having that particular combination of residences; once made it will apply to that property until the property is sold or until the election is varied. If the property is sold, the PPR exemption will exempt the gain for the period for which the election applied. If the remaining property is then the only residence, then the PPR exemption will apply automatically to that property, but if another property is purchased then there is a new two-year period on which a new election can be made.

Used carefully, the PPR election can minimise or even completely avoid CGT on more than one property.

This article is based on current legislation and is of general interest only. Specific professional advice should be taken before acting on matters mentioned here.

Disclaimer

Umesh Modi BA ACA, is a Chartered Accountant and Tax Advisor, and a partner at Silver Levene (Incorporating Modiplus+). He can be contacted on 020 7383 3200 or umesh.modi@silverlevene.co.uk