Your Home and Capital Gains Tax

October 7th 2014

The Government seems to have a policy of whittling away at the traditional capital gains tax exemption for a homeowner’s own ‘principal private residence’. In April this year, the rule that the last three years of ownership qualified for exemption, even if the homeowner no longer lived in the property, was amended to halve the qualifying period to eighteen months. And from April next year, the homeowner’s right to elect which, of two (or more) properties he owns, shall be treated as his ‘principal private residence’ is to be abolished. Instead, there will be a factual test - which property really was his main home? - but quite how this will work is not yet clear.

A homeowner should therefore bear in mind that circumstances may arise in which there will be a chargeable gain on what he now considers to be his main, or indeed only, home. That gain may be minimised by ensuring that records are kept of all allowable expenditure. For example, the base cost for capital gains tax purposes includes not only the price paid for the house, etc, but also the stamp duty, legal costs and survey fee. If the house was bought in a dilapidated condition, the cost of putting it right will also qualify, as ‘improvement expenditure’. Building an extension or a conservatory would also be an ‘improvement’; refreshing a tired kitchen or bathroom can be a grey area, but it doesn’t cost anything to keep the invoices in case they come in useful later.

Expenditure which enhances the owner’s legal interest in his home also qualifies - the most common example is where a leaseholder pays a capital sum to extend his lease.

Finally, additional relief from capital gains tax may be due if the house, etc, was at any time let to a tenant, so a record should be kept of the dates of any letting(s). This relief may seem paradoxical, but was originally introduced to encourage homeowners to rent out their properties, rather than let them stand empty.

Please contact DSC Chartered Accountants in Harrogate if you wish to discuss this article.