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Private Residence Relief

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You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

  • you have one home and you’ve lived in it as your main home for all the time you’ve owned it
  • you haven’t let part of it out - this doesn’t include having a single lodger
  • you haven’t used part of it for business only
  • the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
  • you didn’t buy it just to make a gain

How can the last bullet point be proven?

For example. Mr A lives at home with parents, already has one BTL and has bought another house. Decides to renovate the recent purchase and put it back on the market all within 12-18 months. Mr A makes a significant profit in the process. Would Mr A pay CGT or can he pretend it's his main residence?

https://www.gov.uk/tax-sell-home/private-residence-relief

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From what I understand, the residence that constitutes your main residence is no longer your decision, but theirs. So they decide where you have been living, paying bills etc.

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From what I understand, the residence that constitutes your main residence is no longer your decision, but theirs. So they decide where you have been living, paying bills etc.

HMRC decide at point of sale?

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You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

  • you have one home and you’ve lived in it as your main home for all the time you’ve owned it
  • you haven’t let part of it out - this doesn’t include having a single lodger
  • you haven’t used part of it for business only
  • the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
  • you didn’t buy it just to make a gain

How can the last bullet point be proven?

The last bullet point is simply a layman's summary of Section 224 (3) of the Taxation of Chargeable Gains Act 1992:

"Section 223 shall not apply in relation to a gain if the acquisition of, or of the interest in, the dwelling-house or the part of a dwelling-house was made wholly or partly for the purpose of realising a gain from the disposal of it, and shall not apply in relation to a gain so far as attributable to any expenditure which was incurred after the beginning of the period of ownership and was incurred wholly or partly for the purpose of realising a gain from the disposal."

You can find details on how HMRC interprets this section in its Capital Gains Tax Manual (specifically CG65200 and subsequent pages).

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From what I understand, the residence that constitutes your main residence is no longer your decision, but theirs. So they decide where you have been living, paying bills etc.

Not quite. If you have more than one residence then you can choose which you want to be your main residence. It doesn't have to be the one you reside in, it is your intention that matters. There are many cases that illustrate how the courts and tribunals determine your intention. Each case is decided on the facts. If you don't elect for one of your residences to be your principal private residence then HMRC will determine from the facts which one is your principal private residence. If you disagree with HMRC's determination then you can appeal to a first tier tribunal.

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Personally I am more alarmed by the two but last bullet points - the reference to total land being not much more than an acre AND not having used any part of the property for business use!

I had no idea about the land size restriction - or at least didn't think it would be so small!

As for the business use caveat - how many tens of thousands of people who are self employed and use a room at home as an office must technically be caught out by that one! Any one want to wager they when these people come to sell their family home they tell their solicitor, "Oh by the way you should know that I worked form home a lot of the time and so I guess you'll have to notify HMRC and/or the Land Registry...."

Edited by anonguest

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I had no idea about the land size restriction - or at least didn't think it would be so small!

As for the business use caveat - how many tens of thousands of people who are self employed and use a room at home as an office must technically be caught out by that one! Any one want to wager they when these people come to sell their family home they tell their solicitor, "Oh by the way you should know that I worked form home a lot of the time and so I guess you'll have to notify HMRC and/or the Land Registry...."

It means used exclusively for business purposes. So if you use one room of your house as an office but also use it as part of your private accommodation, then it is not used exclusively for business purposes. http://www.hmrc.gov.uk/manuals/cgmanual/cg64663.htm

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Indeed, your accountant will advise you not to keep office space just for business use.

Even so the comments of the OP apply. How the heck will anyone know one way or the other - unless you confess to it!

I mean seriously! Say, like many people, I am self employed in some manner that is essentially entirely computer based (i.e my laptop computer is the tool of my trade). An example might be, say, a computer programmer.

I may well, in actuality, work entirely from the comfort of an 'office' created in a spare bedroom of my home or turn over the use of my detached car garage to being an office space.

Based on what has been revealed to me here, in this thread, I would be nuts to confess to doing so - with all the potential capital gains tax implications. Instead I would assert, IF ever asked, that I worked in my local library or on a local park bench, etc etc. Anywhere but in my home!

Edited by anonguest

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As for the business use caveat - how many tens of thousands of people who are self employed and use a room at home as an office must technically be caught out by that one! Any one want to wager they when these people come to sell their family home they tell their solicitor, "Oh by the way you should know that I worked form home a lot of the time and so I guess you'll have to notify HMRC and/or the Land Registry...."

If you claim (as I do) a tax allowance for working from home, then you've told HMRC that some part of your home is used for business. Edited by porca misèria

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If you claim (as I do) a tax allowance for working from home, then you've told HMRC that some part of your home is used for business.

So presumably then you will, in theory, be exposed to a risk of having to pay some amount of capital gains tax when you sell your home at some time in the future (assuming a rise in value above the purchase price? or by some specified minimum for the time frame involved?)

IF so then the question is which, in the longer term, would be the better (money saving) option? pay the extra tax now (from your business activities) in return for bigger windfall later (when selling the family home) or vice versa?

Presumably it's a gamble? and depends on you guessing correctly the direction (and magnitude) of house prices over the time frames of concern to you?

Edited by anonguest

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This is exactly why I am of the opinion that there should be a national list of ALL rented out property which everyone has access to. For starters I want to know if I am living in a legit rented property run by a "professional".

And if I am given notice for whatever reason and suddenly see the property up for sale as a private OO residence then I will be motivated to have a little chat with HMRC and would be more than happy to be a witness that I rented the place,.

Which is why our MPs, up to their necks in BTL, will never vote for it!

Edited by anonguest

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So presumably then you will, in theory, be exposed to a risk of having to pay some amount of capital gains tax when you sell your home at some time in the future (assuming a rise in value above the purchase price? or by some specified minimum for the time frame involved?)

IF so then the question is which, in the longer term, would be the better (money saving) option? pay the extra tax now (from your business activities) in return for bigger windfall later (when selling the family home) or vice versa?

Presumably it's a gamble? and depends on you guessing correctly the direction (and magnitude) of house prices over the time frames of concern to you?

Not I. Those of us who rent don't get capital gains.

Of course if I owned it would still be worthwhile. I'd be getting all that I get now as a renter, and any capital gain on top of that would be a bonus ;)

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Not I. Those of us who rent don't get capital gains.

Of course if I owned it would still be worthwhile. I'd be getting all that I get now as a renter, and any capital gain on top of that would be a bonus ;)

OK. So you happen to rent. Fair dos. (I didn't actually stop to think that tax relief, for 'work from home' businesses, would also apply to renters).

BUT you have me confused by the last sentence.

My question/point was that, yes, you can make a financial saving in the here and now, by claiming the appropriate tax relief on your business for using a part of your home. BUT if, over say 20+ years the capital gain on the home (assuming you own it) is big then the capital gain to be paid on the subsequent sale could possibly more than overshadow any year over year gain/saving made from the business tax relief? Put another way claiming the tax relief could be a false economy in the longer run, when coming to sell the home which then is liable to some amount of CGT being applied to it.

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