Capital gains tax on property

In the UK, capital gains tax on property sold is not normally payable, providing it is your primary residence or home.

A property which is defined as your primary residence is exempt from capital gains tax because it will qualify for private residence relief (commonly known as PRR).

However, your property may not be exempt from capital gains tax if any one or more of the following apply:

• If you begin to commercially develop your property (eg into flats which you then rent)
• Part of your home is used exclusively for business, i.e. a home office
• Part of your land or garden is sold
• You are a non-resident and live in a different country, although you may still be exempt
• The property was purchased or improved with the intention of making a profit/capital gain.

Defining your primary residence for capital gains tax purposes

If you are lucky enough to own more than one property in the UK, you get to decide which property is exempt from capital gains tax.

In most cases the property nominated should be the one which has made the most gains, and it doesn’t have to be the one where you spend most of your time.

If you have purchased a property, you typically get up to two years to nominate which property you wish to be tax exempt.

If you are married (or in a civil partnership) you are only able to have one main home, however if you are only a couple with no legal connection, you can nominate a property each.

Letting or renting part of your home

It is common for many people to help pay their mortgage by letting one or more rooms in their home. If you do, capital gains tax on your property may be due if you have made gains when you sell it.

There are, however, opportunities to claim tax relief on any capital gains if the property has been your main home.

You may also qualify for letting relief, although you will not be able to claim private letting relief if you intend to claim for letting relief.

If you are unsure about the capital gains tax implications on property if you intend to rent one or more rooms, you should seek advice about your best approach to ensure that you make the right decision to minimise your capital gains tax liability.

Capital gains tax on inherited property

When you inherit a property, while you will not incur capital gains tax on that property, it’s value at the time of death will be incorporated into the estate and therefore may be liable to inheritance tax.

If you decide to sell the property without it becoming your main home, capital gains tax may be due on the property. Capital gains tax will be calculated from the gains made from the market value of the house when the individual passed away.

If you have a property which you intend to gift, or you have inherited a property, you should seek expert advice on your tax situation before making any decisions about your property to minimise your tax exposure.

If you are gifted a property, it will typically count as a gift with reservation of benefit and will therefore still be included in that person’s estate when they die and may be liable for inheritance tax. If you decide to sell the house, you may then also be liable for capital gains tax on the property.

Capital gains tax declarations when selling residential property as a non-resident

Since the new rules came into force in April 2015 as a non-resident, when you sell a UK residential property you must tell the HMRC, even if you have no capital gains tax to declare. This also applies if you are selling, or have sold, your main residence.

Failure to correctly make a capital gains tax declaration to the HMRC within 60 days after conveyancing (transferring ownership of) your property is likely to result in a penalty – even if there is no capital gains tax to pay.

We always recommend that you seek professional advice before finalising any declaration or capital gains tax calculation.

Capital Gains tax on property for non-residents and expats

If you own a property in the UK, but are not a tax resident in the UK, you will, after April 5th 2015, be liable to pay capital gains tax on any gains made whenever you decide to sell it.

If you are unsure of your situation, and would like clarity on the capital gains tax rules on property for expats and non-residents, read our guide on Capital Gains Tax for Expats before seeking expert advice.