Will you now be liable to tax on selling your old home?

Will you now be liable to tax on selling your old home?

Thu 06 Mar 2014

The automatic exemption from capital gains tax for the final period of ownership of former principal private residences will be halved to 18 months from 5 April 2014.  Individuals who have already moved out of their former residence may now find that they have an unexpected tax liability.

This change may affect people who own property which has previously been their main residence but which they ceased to occupy before 6 October 2012.

The valuable relief is intended to allow people who move house a ‘period of grace’ in which to sell their old house but it also benefits owners who rent out their property or move into a second home.  Currently the final 36 months of ownership always qualify for relief provided that the property was the individual’s principal private residence at some point.  In some cases this reduction could result in halving the amount of relief available.

 The property market appears to be recovering (rapidly in some areas) but where owners are relocating to take up a new employment, for example, 18 months may not always be enough time to sell without realising a taxable gain.

This may not have a significant impact for many if the property is sold within a few months of the 18 month limit as the chargeable element of the gain may be covered by an individual’s annual exemption from capital gains tax of £11,000 for 2014/15 (or £22,000 in the case of jointly owned homes).

 Former homes that have subsequently been let can also qualify for additional “letting relief” which can be linked to the amount of Principal Private Residence relief available.  Some landlords could now find themselves losing out on relief twice as a consequence of this change.

 Without specific provisions, elderly people in particular could find themselves worse off if they are now selling the home that they have owned for decades which is pregnant with significant capital gains.  The Government has introduced provisions to keep the final 36 month exemption in place where someone is moving into a residential care home.

Will we see a rush of contracts on properties being exchanged before 5 April 2014 so that home owners can bank the relief which may otherwise be restricted?  Probably not but it may be worth thinking ahead when buying or selling a house in the future to ensure that any tax on the increase in the value of the property is minimised.

Planning which property to treat as your principal private residence when buying a second property has often resulted in tax savings in part because of the automatic entitlement for relief for the last three years of ownership.  There are still savings to be had by undertaking advance planning in spite of this change to the relief and Mazars can advise individuals looking to buy a new residential property on how best to manage their future exposure to capital gains tax.


Leave a Reply

Your email address will not be published. Required fields are marked *