Capital Gains Tax is a tax on the profit when you sell something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.
You may not be aware that you do not have to pay Capital Gains Tax when selling your home, but the detail of the rules are a little more complex than this though.
Capital Gains Tax is not due when each of us sell our ‘principal private residence’, but this is actually subject to limits on the size of the garden. The Revenue only allow the relief to apply to a ‘permitted area’, of either half a hectare or, subject to persuasion, the plot required for the ‘reasonable enjoyment of the dwelling-house’. As you can imagine, this can be a little subjective!
In a recent case, the home in question was a five bedroom, three bathroom property, with a garage for three cars, one-bedroom cottage, swimming pool and around one hectare of grounds. The couple who owned it decided to sell to a housing developer, after the developer acquiring the surrounding fields. They did not declare the sale for Capital Gains Tax, thinking that it was free from tax.
The Revenue swooped in further down the line, having combed through stamp duty records on numerous property sales, as is usual. They gave the couple a bill for a staggering £162,820, being the Capital Gains Tax due on the excess above half a hectare.
Unsurprisingly, this was not the most welcome news for the couple and they decided to appeal it, on the basis that all the garden was needed for the property’s reasonable enjoyment.
Thankfully, the tax tribunal judges agreed. Rather than simply considering comparable properties in the area, the judges also looked at the specific facts and decided that it was reasonable for the house’s grounds to extend a little further than usual. The CGT bill was reduced to nothing.
This was a victory for the taxpayer, but only on the particular facts in play. The lesson here is to never assume with taxes and always to seek advice if in doubt.
For any support with residential property sales, contact our dedicated Residential Property team. Or for any help with taxes, please talk to our Later Life Planning team.
