Is There Capital Gains Tax on Selling My Main Home

Introduction

Capital Gains Tax is a tax on the profit you make when selling or disposing of an asset that has increased in value. While it usually applies to second homes, investment properties, and certain other assets, your main home is often exempt.

This exemption is known as Private Residence Relief (PRR), and it covers the period when the property was your main residence. However, some situations can limit or remove the relief, so it is important to understand the rules before selling.

When you do not pay Capital Gains Tax

If your home qualifies as your only or main residence, you will not have to pay Capital Gains Tax on the sale. To qualify for full Private Residence Relief, the following conditions must apply:

You have lived in the property as your main home for the entire period of ownership.

You have not used any part of the property exclusively for business.

The grounds (including the garden) are under 5,000 square metres in total (about 1.2 acres).

You did not buy the property simply to make a profit.

If these conditions are met, the full gain is exempt from CGT, no matter how much the property has increased in value.

Example

James bought his house for £250,000 and sold it several years later for £400,000. He lived there the entire time, and the property was never used for business or rental. His entire £150,000 gain is exempt from Capital Gains Tax.

When Capital Gains Tax may apply

You may have to pay CGT on part of the gain if any of the following apply:

1. You have not always lived in the property

If you rented out the property for part of the time, lived elsewhere, or owned more than one home, PRR will only apply to the period when the property was your main residence. The remainder of the gain will be taxable.

HMRC also allows you to treat the final nine months of ownership as exempt, even if you were not living there during that time. This covers situations where you have already moved to a new home before selling the old one.

If you moved into a care home or are disabled, the final 36 months can be exempt.

2. You let part or all of your home

If you rented out a room or an annex in your home, part of the gain may still qualify for relief, but not all. If you let the entire property at any point, CGT may apply to the proportion of time it was rented out.

For example, if you owned a property for 10 years and rented it out for 2 of those years, 20 percent of the gain could be taxable.

3. You used part of your home for business

If you used a room or section of your property exclusively for business purposes, the gain from that portion will not qualify for PRR. Occasional home working does not usually affect relief, as long as the space also has personal use.

4. The grounds exceed the permitted area

If your garden and grounds are larger than 5,000 square metres (about 1.2 acres), the excess area may not be covered by PRR, and CGT may apply to that portion.

5. The property was bought to make a profit

If HMRC believes you bought, renovated, and sold the property with the intention of making a profit, it may treat the profit as trading income rather than a capital gain, meaning you could pay Income Tax instead.

Calculating the taxable gain

If part of your gain is taxable, the calculation works as follows:

Total gain = Sale price Purchase price Allowable costs

Allowable costs can include:

Solicitor and estate agent fees.

Stamp Duty Land Tax when you bought the property.

Costs of improvements, such as extensions or renovations (but not repairs or maintenance).

Private Residence Relief is then applied to the portion of time the property was your main home, and the remaining gain is taxed at:

18 percent for basic rate taxpayers.

24 percent for higher or additional rate taxpayers (on residential property gains).

Example

Anna owned a house for 12 years and lived in it for 9. She rented it out for the remaining 3 years. Her gain was £120,000.

She receives PRR for 9 years plus the final 9 months, which is roughly 80 percent of ownership.
Therefore, 20 percent of the gain (£24,000) is taxable.

If she is a higher rate taxpayer, her Capital Gains Tax bill would be:
£24,000 × 24 percent = £5,760.

How to claim Private Residence Relief

You do not need to claim PRR if your home qualifies fully and there is no tax to pay. However, if you only qualify for partial relief, you must calculate the exempt and taxable portions and report the gain to HMRC.

You can do this either through:

The Capital Gains Tax on UK property account (within 60 days of completion), or

Your Self Assessment tax return, if you are already required to file one.

Records you should keep

To support your calculation and claim for relief, keep:

The purchase and sale contracts.

Invoices for estate agents, solicitors, and improvement work.

Dates when you moved in or out.

Details of any periods the property was rented or used for business.

HMRC can request this information if they review your CGT calculation.

Common mistakes to avoid

Assuming all property sales are exempt.

Forgetting to report the sale if part of the gain is taxable.

Mixing up home improvements (which qualify) with general repairs (which do not).

Missing the 60-day reporting deadline for taxable property gains.

Conclusion

Most people do not pay Capital Gains Tax when selling their main home, thanks to Private Residence Relief. However, if the property was ever rented out, used for business, or not always your main residence, part of the gain could be taxable.

By keeping detailed records, understanding the conditions for relief, and reporting any taxable gains on time, you can ensure your sale is handled correctly and that you only pay the tax you owe. If your circumstances are complicated, consider seeking advice from a qualified tax adviser or accountant to confirm how the rules apply to your situation.