I sold my old main residence (which I rented out for a few years after) and bought a new one. How does Private Residence Relief actually work now with the new 60-day rule for reporting CGT? Do I just report the gain on the letting period?
Quick Answer
Private Residence Relief (PRR) exempts periods your property was your main home from CGT, including the last 9 months of ownership. You report and pay CGT on the non-PRR portion of the gain within 60 days of sale completion for residential property.
## What is Private Residence Relief and how does it apply when selling a former main residence?
Private Residence Relief (PRR) exempts Capital Gains Tax (CGT) on gains made from selling a property that has been your main residence for all or part of the ownership period. When you sell a property that was once your main home but was then rented out, PRR typically covers the period it was your main residence, plus the final 9 months of ownership, regardless of how it was used in that final period. For example, if you owned a property for 10 years, lived in it for 5 years, and let it out for 5 years, PRR would cover the 5 years of occupation plus the final 9 months, reducing the taxable gain. There is also an additional letting relief of up to £40,000, though this is being phased out.
## How does the 60-day CGT reporting rule affect this scenario?
The 60-day rule for reporting and paying CGT on residential property sales applies directly to this situation. For any residential property sold after April 2020 where CGT is due, the gain, after applying PRR and the annual exempt amount (currently £3,000), must be reported to HMRC and the tax paid within 60 days of the completion date. This means estimating your PRR entitlement accurately shortly after sale is critical. Failure to report and pay within this 60-day timeframe can result in penalties and interest charges.
## Does this affect all residential property sales?
No, the 60-day rule specifically applies to *residential property sales resulting in a gain that is liable for CGT*. If, after applying PRR, letting relief, and your annual exempt amount, there is no CGT to pay (for example, due to minimal gain, significant PRR, or the property was gifted), then the 60-day reporting requirement does not apply. Similarly, sales of commercial properties or shares are not subject to this 60-day residential property reporting rule. According to government guidance, the responsibility lies with the homeowner to determine if a gain is taxable and therefore reportable.
## How is Capital Gains Tax calculated on the non-PRR period?
The capital gain is typically calculated by subtracting the purchase price and allowable costs (e.g., stamp duty, legal fees, improvement costs, selling fees) from the sale price. This total gain is then apportioned based on the proportion of ownership that does *not* qualify for PRR. For instance, if you owned the property for 100 months, lived in it for 50 months, and the final 9 months are covered by PRR, then 59 months are exempt (50+9). The gain for the remaining 41 months would be taxable. From this taxable portion, your annual exempt amount of £3,000 is deducted. Basic rate taxpayers pay 18% CGT on residential property gains, while higher and additional rate taxpayers pay 24%. This can have a significant impact, for example, a £50,000 taxable gain for a higher rate taxpayer would result in a £12,000 CGT bill.
## What are the key considerations for investors in this situation?
Accurate record-keeping from purchase to sale is vital for investors. You must retain all purchase and sale documents, legal fees, Stamp Duty Land Tax (SDLT) receipts, and receipts for significant capital improvements. These will be required to calculate your cost base when applying for PRR and determining the taxable gain. Given the £3,000 annual CGT exempt amount (reduced from £6,000), it's more likely that a gain will be taxable. Investors should also be aware that the 5% additional SDLT surcharge applies for additional property purchases, impacting the initial cost base for new investments.
Steven's Take
The changes to CGT and PRR, particularly the 60-day reporting, mean you must be proactive in your calculations if you've sold a property that was once your main home. Many investors get caught out by underestimating their liability or missing the 60-day deadline due to poor record-keeping. The reduction in the annual exempt amount makes more gains taxable. My advice is to engage with a specialist tax advisor well before completion to get a clear picture of your position and avoid penalties.
What You Can Do Next
1. Gather all purchase, sale, and improvement records: Locate all invoices, completion statements, and receipts relating to the property's acquisition, any capital improvements, and its sale. This forms the basis for your CGT calculation.
2. Calculate your estimated CGT liability: Use HMRC's online calculator (search 'HMRC CGT calculator') or seek advice from a property tax specialist accountant (search 'property tax accountant' on ICAEW.com) to estimate the tax due, considering PRR, any letting relief, and your annual exempt amount.
3. Report and pay CGT online within 60 days: Register for a Capital Gains Tax on UK property account on GOV.UK (search 'Report and pay Capital Gains Tax on UK property') immediately after completion to submit your figures and make payment to avoid penalties. Ensure you meet the 60-day deadline from the date of completion.
4. Review your council’s second home policy: If you held the property as a second home before letting it, check your local council's website for their current Council Tax policy on second homes, as premiums of up to 100% can apply from April 2025, which impacts holding costs.
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