Are there tax consequences if I sell the house I live in?
The answer, to so many questions, is it depends. If you meet all of the following conditions, it is likely full Principal Private Residence (PPR) Relief will apply and therefore that there will indeed be no tax when you sell your house:
- This is your only residence or the property you primarily live in.
- You bought this house to live in, rather than with a view to quickly re-selling it.
- You have always lived in this house, since you bought it, other than during “qualifying periods of absence”.
- You are and have been tax-resident in the same country as the house for your period of ownership
- The garden or grounds in your house are either less than half a hectare or required for “reasonable enjoyment” of the property.
- You have never used any part of the property purely for business use
- You sell the house for an upfront payment only.
You will see immediately that some of these criteria are objective, while others are more subjective.
Condition 1 – whether this is your main residence (the property you primarily live in)
If this is your only residence (house you live in, whether owned or rented), this condition is satisfied. If you have two or more residences, you can elect which you would like to qualify for PPR relief. If you own this second residence, the initial election must be made within 2 years of first having this set of residences. If you are renting, you can elect at any time.
Otherwise, whether the house being sold is your main residence is a question of fact determined by factors, including where you spend most of your time, where your family live, and which you use as a correspondence address.
If this house is not considered your main residence (or one of your main residences), no PPR relief will apply.
Condition 2 – whether you bought this house to live in
This condition is looking for quality of occupation rather than quantity of occupation. However, a longer period of residence makes it easier to demonstrate the intention that this remain your primary residence long-term.
If there is no expectation of permanence, no PPR relief will apply.
Condition 3 – You have only had qualifying periods of absence
If you have been absent from a property, other than for qualifying periods, you will not get PPR relief for these non-qualifying periods of absence. These qualifying periods are:
- The first 24 months of ownership (usually)
- The last 9 months of ownership
And the following periods if the property is occupied both before and after the absence:
- Up to 3 years when not able to occupy the property due to working away in the UK
- Any period spent working abroad
- Up to 3 years for any other reason
Condition 4 – Tax-resident in the same country as the house
Any year of non-residence in the same country as the house will be non-qualifying, unless either your spouse was tax-resident in the same country as the house, or either of you spend 90 days living in a house you own situated in the same country as the house being sold.
PPR relief will be time-apportioned for any non-qualifying years.
Condition 5 – Size of the garden or grounds
If the garden or grounds is less than half a hectare, there will be no need to apportion the PPR relief for this condition. Otherwise, the PPR relief may be apportioned, unless these grounds are required for reasonable enjoyment of the property.
It is likely they will be needed for reasonable enjoyment if the size of the garden is necessary to maintain the privacy of the home, or if this is normal for houses of similar size and character.
Condition 6 – Business use of part of the property
If part of the property is used 100% for business use, this would lead to apportionment of the PPR relief. This is likely to apply if a room is converted for use for a business being operated from home, e.g. hairdressing, or consultancy. This is unlikely to apply to studies, because they are ordinarily used partly for private admin, but may apply if 100% tax relief has been claimed for a room.
Condition 7 – You sell the house for an upfront payment only
Most house sales are of this nature and the buyer will pay in full when they purchase the property. However, in some cases, developers will purchase the property with a clause that allows the seller to share in the house’s increase in value. In this case, subsequent payments are likely to be taxable, either to income tax or capital gains.
Conclusion
Most sales of the house you live in will be straightforward with no tax consequences. If you think one of these conditions may create a tax charge, it is worth considering tax planning before the transaction, and seeking advice with any tax compliance requirements as the transaction progresses.
If you would like more information on this, please contact Krista Woodman at krista.woodman@ballardsllp.com or Tamara Shaw at tamara.shaw@ballardsllp.com
Disclaimer. This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated with us.
