CGT Exemption On Home Sale

How long must I own my home to avoid paying Capital Gains Tax?

Capital Gains Tax (CGT) is a tax payable on the increase in the value of an asset when it is sold or gifted. For example, if you purchase a property for £500,000 and later sell or gift it for £600,000, CGT will be due on the £100,000 gain.

However, there is an important exception: CGT is not payable on a person’s main residence due to the Principal Private Residence (PPR) exemption.

What is the Principal Private Residence exemption?

The Principal Private Residence exemption (PPR) ensures that you are usually exempt from paying CGT when you sell your main home. But how long do you have to live in the property to prove it is your main residence?

Legislation does not explicitly define what constitutes a “residence.” However, courts and HMRC consider factors such as permanence, continuity, and the expectation of continued occupation. While short-term occupancy can qualify for PPR, the quality and nature of your residence are just as important as the length of time you live there.

For example:

• Evidence: Documents such as utility bills, council tax records, and bank statements registered to the property can help demonstrate that it was your main home.
• Multiple Properties:  If you own more than one property, you can elect which property will be treated as your main residence for tax purposes.

Renovating a Property and Avoiding CGT

Buying a run-down property, renovating it, and selling it for a profit may sound appealing, but this does not automatically exempt you from CGT. To qualify for PPR, you must genuinely use the property as your main home. HMRC carefully scrutinises claims for PPR to ensure compliance. For instance, if developers or property investors attempt to claim PPR for properties they renovate and sell, they are often unsuccessful.

How Long Do You Need to Live in a Property to Avoid Capital Gain Tax?

There is no fixed minimum period for occupancy to qualify for PPR, but courts have made it clear that short-term occupancy without evidence of genuine residence can undermine your claim.

Key Case Studies:

Benford v HMRC (2011)

Mr. Benford claimed PPR after living in a property for six months, arguing the short ownership was due to personal circumstances (a marriage breakdown). However, the Court rejected his claim, as utility bills and council tax records indicated the property was empty during this period.

Moore v HMRC (2011)

Mr. Moore bought, refurbished, and rented out a property before selling it for profit. Although he lived in the property during refurbishment, the Court found his evidence vague and inconsistent, ruling against his PPR claim.

Core v HMRC (2020)

In contrast, Mr. Core, a builder, lived in a house he renovated for 6-8 weeks with his family before selling it due to unsolicited offers. The Tax Tribunal accepted that he genuinely intended for the property to be his main home and allowed his PPR claim, despite the short period of occupancy.

Changes to CGT Rules in 2025

The UK government has made several changes to CGT that may affect homeowners in 2025:

Reduction in CGT Annual Exemption

For the 2025/26 tax year, the CGT annual exemption will be further reduced to £3,000, down from £6,000 in 2024/25 and £12,300 in 2022/23. This means individuals will pay CGT on any gains exceeding this threshold.

Changes to Reporting Deadlines: If you sell a property that is not fully covered by the PPR exemption, you must report the gain and pay any CGT due within 30 days of completion.

Rates of CGT

The rates of CGT remain at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers on property gains. These rates apply to any taxable portion of the gain after deducting allowable expenses and the reduced annual exemption.

Gift Relief Scrutiny

Transfers of property to spouses or civil partners remain exempt from CGT. However, transfers to other family members (e.g., children) will trigger CGT unless structured carefully, especially for second homes or investment properties.

Key Takeaways

If you are considering selling your property, especially one you have renovated, ensure you:

Remember, the longer and more substantial your occupancy, the stronger your claim for PPR exemption. However, as the case of Core v HMRC shows, intention and evidence can sometimes outweigh short periods of occupancy.

Collect evidence to prove the property was your main home (e.g., utility bills and council tax records).

Understand the changes to CGT thresholds and reporting requirements.

Seek professional advice for complex scenarios, such as property development or owning multiple homes.