Selling your house – tax issues

Most people buy and sell the property that they reside in without any thoughts to tax, apart from perhaps Stamp Duty Land Tax. However, there are some circumstances in which selling the property that you reside in can cause some tax issues. Some of the main issues are:-

1. Where you own more than 0.5 hectare of land:
If you have a large amount of land, Capital Gains Tax may apply to land in excess of 0.5 hectare, which is about one acre. Large areas of land will be exempt if they are “necessary to the enjoyment” of the property as a whole.

2. Where the property has been let for a long period:
The current law exempts private residents from Capital Gains tax on a “time” basis. So if a property has been let for ten years and lived in for ten years, the gains are apportioned. However, the last three years are treated as exempt, so in the above example, only seven/twenty of the gain would be subject to Capital Gains Tax. There are other examples of which periods of which non-occupation can be exempt, such as when working abroad.

3. Where the property is used wholly or in part for business purposes:
In this case, the charge or gain is usually calculated by reference to the proportion of the property used for business and the period of time over which it is used. Where the business is furnished holiday lettings, Capital Gains Tax taper relief may be available. In some circumstances, taper relief on the business proportion may be available.

4. Where the property has been used for “hobby farming” the gain which is exempted by the application of Agricultural Property relief may be restricted.

5. Where more than one property is owned:
A couple can only have one Capital Gains Tax exemption of Principle Private Residence. So, if you own two properties, you should generally elect for the property with the higher potential Capital Gain to be chosen as the Principle Private Residence. The election must be lodged within a strict time limit, so it makes sense to consider this when purchasing a second property.

John Rutherford