As you may well imagine, the question of Capital Gains Tax on Property is highly complicated, particularly if you own property for buy-to-let, have a second home within the UK or indeed have a second home in a foreign country.
I personally know of several people who, for tax resident purposes, are deemed to live in a foreign country such as Spain, but when it comes to domiciliary issues, they are deemed to be based in the UK. This has a great bearing on their future tax liabilities and I will deal with this aspect later.
Once again, I have to stress that I am neither a legal nor accountancy expert but the information contained within this article is the culmination of hours of in-depth research. Let us look at some of the main points.
Under normal circumstances and indeed in most cases, the individual will not be liable for any capital gains tax on the sale of a private home since most people will qualify for what is known as Private Residence Relief. In order to qualify, there are two criteria that you must pass: –
It is interesting to note that you are perfectly entitled to sell part of your garden but not necessarily the property itself at the same time, and providing the above two conditions have been met, you would not be subject to any capital gains tax on the selling price.
I mention this point because if you have a large garden, but specifically below 5000 sq. ft. in view of the demand for building land, this could present an opportunity to sell the garden only.
Please bear in mind that you may not qualify for a full Private Residence Relief if you fall foul of any of these essential points.
Just for the record, you do not have to physically claim this relief since you are given it automatically. If you complete an annual Self-Assessment form you may however have to include this item within that form. It is your obligation though to inform HMRC should any of the exclusions mentioned above apply to your case. It is not for HMRC to chase after you to determine your situation.
I’d just like to mention here two other small points that relate primarily to a couple living together. If you give your home to your spouse or civil partner, you will normally not have to pay any capital gains tax. However you must ensure that you have both been living together for at least part of the tax year in which you dispose of the property. Always remember though that should they dispose of the property at a later date, they may themselves be responsible for any capital gains.
As I mentioned earlier in this article, there is a substantive differences between being resident in a foreign country and being domiciled there. Your property overseas may be a second home or indeed your primary residence and in this instance, you do need to take professional advice as to where you stand in respect of capital gains tax with regards to this property. The applicable conditions are extremely detailed and I must say are far too involved to be incorporated within this article.
One of the first things you need to determine is the length of time that you have owned the property. Up until April 2014, the last three years prior to the actual date you dispose of the property, automatically qualified for full relief. However from 6th April – the tax year 2014 to 2015, the period has been reduced to 18 months. As a result the date of ownership starts either from the actual date you purchased the house or from a period not less than 18 months or more before the disposal date.
The importance of the purchase date is because any period that the property is owned as the primary residence prior to the 18 month deadline, is automatically permitted full tax relief. This means that should you decide to rent the property during the last 18 months, or indeed even sublet part of it, that period is also automatically exempt from any Capital Gains Tax.
In today’s world, couples who are not married may have lived together for a period of time. Each individual in such a relationship is entitled to their own Private Residence Relief, which is a bonus when each individual owns their own personal residential property. The same however does not apply to married couples. The couple must individually and jointly designate a particular property as their primary residence in order to qualify for private residence relief that and any second or more properties would therefore fall subject to capital gains tax.
As I have mentioned throughout this article, Capital Gains Tax on Property is extremely complicated and I cannot stress enough the necessity to contact suitably qualified professionals. However in order to give you a guideline of your possible liabilities, there are a number of Capital Gains Tax calculators on the Internet but I would recommend going to the horse’s mouth so-to-speak and have a careful look at that supplied by HMRC.