The lowdown on property taxes
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by: Admin
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An increasing number of people are facing tax charges on the sale of their homes where they own more than one property or are selling off land for property development. However, profits made on the sale of your home are exempt from capital gains tax (CGT) if it is your only or main residence throughout the period of ownership. The definition of the house includes the main building, and any relevant buildings adjoining it such as a garage or, in some cases, a separate building occupied by staff. Where the gardens and grounds are up to half a hectare, any gain on their sale is also exempt from CGT. Where someone has more than half a hectare of land and gardens, these will also be exempt from CGT, as long as they are provided for the "reasonable enjoyment of the property", as the legislation puts it. But if someone has substantially larger grounds, such as five hectares of gardens attached to a three bedroom semi-detached house, the grounds are unlikely to be totally exempt from CGT. Unfortunately this is an area of subjective judgement and settling it is down to negotiation with the Revenue. Other exemptions Where the property has been a person's principal private residence (PPR) at any time, the last three years of ownership are always exempt from CGT. Additionally, if someone moves out of their home to work abroad these periods of non-occupation would in fact still count as occupation.
So they would also qualify for exemption from capital gains on the condition that the owner moves back into the house on their return to the UK. If a person uses part of their home exclusively for business purposes then that proportion of the property would not be exempt from CGT on sale. Exclusive use would, for example, apply to a photographer having a room set aside as a studio as opposed to a translator who occasionally uses the dining room table. A reasonable apportionment would be applied when calculating the chargeable gain appropriate to the business element.
Letting Another very valuable relief is something called the lettings exemption, which applies where a house that has been someone's PPR is let as residential accommodation. This situation might arise where someone moves but decides to keep their old property and let it. For example, on an eventual sale five years after moving out, capital gains in the final three years of ownership would be covered in any event, as they are covered by PPR relief (see above). This would leave two years of ownership potentially liable to CGT.
But because the property was let there is an additional exemption available.
The relief is subject to restrictions with an overall maximum of £40,000 of capital gains, but is available to both husband and wife (or civil partners) where the house is in joint names, putting the exempt gain up to £80,000.
CGT would be applied to the gains in those two years if, for instance, the property had been left standing empty. There are other various exemptions for PPR purposes which are not covered here, such as dependent relatives' accommodation and residences owned by trustee or personal representatives, which extend the PPR relief. |
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