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Simply explained if you sell your home that you are living in or have lived in then the whole or part of the gain is exempt from tax. Please be reminded that irrespective of occupation the final 36 months of ownership qualify for relief.

Special provisions apply if you own two residences and if you have had periods of time when you were not in occupation.

As soon as a second property has been purchased an election should be made for it to be the principal private residence, the final 36 month period being exploited in respect of the original property in the meantime.

Relief will be available for both properties for the three year period.

Each property must be a residence so that ownership is not sufficient.

What is a dwelling house?

Not only bricks and mortar but carefully handled caravans and houseboats can qualify; basically the usual services water, electricity and telephone would need to be installed and the facts would need to support a degree of permanence and occupation as a dwelling.

The previous use of a building/structure does not affect the position as long as with caravans/boats the facts support the use as a permanent residence. Other types of converted building that would qualify would be warehouses, barns, windmills, churches, lighthouses and many others.

There is some interesting case law on what is covered by the exemption where there is a dwelling house with more than one building. Basically, the cases indicate that in reaching a decision as to which buildings are exempt you need to consider: are the small buildings secondary to a larger or main building?

Are the small buildings occupied by staff for the main house, or were they at least built for such occupation? Can it be said that they are too far away from the main house to be regarded as one unit?

The most important aspect is probably, whether overall the small buildings can be regarded as part “of the entity which, in fact, constitutes the residence of the taxpayer”, and, are they within the curtilage of, and appurtenant to, the main dwelling house?

Garden or grounds?

Not only is the profit from the building exempt but so is the land on which it stands. The maximum being 0.5 of a hectare; but it must be for your own occupation and enjoyment.

So can there be any exception?

Yes, where you can show that the greater area was required for the reasonable enjoyment of your residence having regard to the size and character of the house. There are several decided cases that will make the definition clearer.

How long do I need to live there?

Lord Justice Widgery explained…”Some assumption of permanence, some degree of continuity, some expectation of continuity, is a vital factor that turns simple occupation into residence”.

Sale of plot

The sale of your home is tax free if it has been your only residence. The plot including the site of the house is exempt if it does not exceed 0.5 hectares. This area can be exceeded in certain defined circumstances.

That said if you sell the house with some land and retain a “plot” which is subsequently sold; the exemption does not extend to the sale of the “plot” as it is no longer your main residence at the time the “plot” is sold.

If you get planning permission and intend to develop yourself I suggest you sell the land into a company in order to shelter the development profit at the corporation tax rate rather than at the higher rates.

The statute prohibits relief where the dwelling house was specifically purchased with the object of making a gain which would be tax free.

You could buy a house with up to 0.5 hectares of land or land on which you could build a house and later sell with the benefit of planning for another house or houses. Do not get planning permission as this indicates your future intention.

Only go for planning at the time the property is to be sold; you will need a reason for sale to show you did not have the profit from the development in mind when you purchased the property originally.

Private residence which has been let

When a property is sold which has been your only or main residence, there is an exemption available to recognise the capital gain caused by any residential letting. If the property had been let in whole or in part at any time during your ownership, tax is chargeable but relief is at hand.

Statute exempts the gain chargeable by reason of the residential letting by a further amount. The total amount of relief from tax is the exempt amount due to the period of residence and deemed residence and a further amount which is equal to the lesser of (a) the exemption due, and (b) £40,000.

The relief applies to an individual with the result that it would seem that the relief applies to you/ your husband or wife/civil partner.

Private Residence – Two Properties

Where you own two properties it is important to consider carefully which property should be the main residence and an election made accordingly.

Your main residence could well be a property in the country which does not have the same capital appreciation as a flat in London which is used as a pied-a-tare. Both being used as residences it would be wise to elect for the “greater gain” to be exempt i.e. the London flat.

This election must be made within two years of the acquisition of your second home and you can vary it at any time in favour of another property.

This could be for as little as one week. It will enable you to have three years exempt, at least, being the final three years. If you are too late to elect you could buy a third property to facilitate a timeous election. Plan carefully and act with good professional advice.


When your children go to work away or to University they should have their own property even if you are called upon to stand as guarantee.

Purchase the property in your child’s name and then they can receive the rent if they let out rooms to their friends, which should offset a high proportion of the mortgage repayments. Also consider whether rent a room relief is due.

Settlement residence: exemption

Where trustees dispose of a dwelling house or part of a dwelling house which has been occupied by a beneficiary under the terms of a settlement the provisions that relieve a private residence apply.

I hope that this has helped you not only to understand the statutory provisions but show you that everybody should make multiple tax free capital gains during their lifetime.

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