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If an individual sells their only or main private residence, any gain is exempt from tax.

This includes the garden up to 0.5 hectares, or a larger area if required for reasonable enjoyment of the residence.

If the property has not been an individual’s main residence throughout the period of ownership, the relief is apportioned and gains attributed to periods where the property was not the main residence are taxable.

Some periods of absence are disregarded and qualify for relief regardless of whether the property was the taxpayer’s main residence at the time. Broadly, these are the last 18 months of ownership; and provided the property was used before and after the period of absence:

  • Any period of up to three years
  • Any period in which the owner is required to live in job-related accommodation
  • Any period working overseas
  • Up to 4 years working away from home in the UK

Letting Relief

If a property which qualifies for main residence relief is let during ownership, relief can also be claimed in relation to the gain arising during the period of letting. The maximum letting relief is the lower of:

  • The gain arising during the let period
  • PPR relief
  • £40,000

Renting a room out under the rent-a-room scheme does not affect main residence relief.

Period of Ownership

To qualify for main residence relief, there must be a degree and expectation of continuity to a period of residence. A very short period of occupation can qualify an owner for main residence relief, giving access to the additional deemed periods of residence. The key factor is the owner’s intention to occupy the property as a residence.

Two Residences

Where two or more residences are owned, it is possible to make an election as to which should be treated as the ‘main’ residence and qualify for relief. The property nominated must be an actual residence, but it doesn’t have to be the primary residence.

Nominations must be made within two years of a change in the combination of residences, but once made nominations can be varied and it is possible to flip elections in order to take advantage of the rules on deemed residence.

Married Couples

A married couple can only have one main residence between them for tax purposes. Any election as to which property is the main residence must be signed by both spouses.

There is no capital gains tax on transfers between spouses.

When a married couple who live together transfer the main residence from one to the other, the transferee acquires the transferor’s ownership history for the purpose of main residence relief.

When a property which is not the main residence is transferred between spouses, there is still no capital gains tax on the transfer, but the transferee’s period of ownership starts at the date of transfer.

Therefore when property is owned individually by one member of a married couple, large taxable gains can potentially be wiped out by transferring the property to the other spouse before sale to a third party.