Q:Do we need to pay capital gains tax? We moved from our family home recently on our retirement. Our daughter has agreed to buy it from us. Will we have to pay tax on the sale of this house even though we lived in it for 20 years?
A: You know what they say about assumption, but in this case, it would be legitimate to go down this path.
I assume the sale would be at the full market value. And I imagine you’ll be downsizing.
Therefore, the short answer to your question is no.
Capital Gains Tax on Principal Residence
We typically don’t pay capital gains tax (CGT) profit made on the sale of your home. I assume youl’ll be selling the property at a profit relative to the purchase price. CGT relief is therefore, one of the most valuable reliefs from which the likes of you and I would benefit. Of course, this relief comes at a great social cost, but that’s a story for another day.
The relief – the Principal Private Residence Relief, exempts the gain on the sale of any property that has been your main residence from taxation.
Only a property occupied as a residence qualifies for this tax break.
The reason you ask is that as part of your estate planning, you want to be on the right side of the law.
The reason you ask is that part of your estate planning, you want to be seen to be on the right side of the law.
The reason you ask is that as part of your estate planning, like Ceasar’s Wife you want to be seen to be doing the right thing – and if necessary, pay capital gains tax as falls due.
But people who should have known better, who certainly knew better, in the spirit if not in the letter, flouted the law – they’ve failed to pay capital gains tax when this levy was due.
You might recall the expenses scandal involving several members of parliament.
Many say this parliamentary embarrassment from about a decade back reduced the standing of parliament in the eyes of the public. Not you, you’re too smart to fall for such glib nonsense – the rot set in much earlier.
Let us refresh our memories. A main element of this parliamentary nonsense was that a member of parliament would, with taxpayer’s cash, buy a residential property, a ‘second home’ near the Houses of Parliament. When this second home was ripe for sale, the member would designate the ‘second home’ as the principal private residence so they could get this tax break. They called it flipping.
Many would say this failure to pay capital gains tax was a clear, if legal abuse of the rules, and I would be one such person.
To Not Pay Capital Gains Tax: It was a Scandal
Letter, not spirit. Shameful, I hear you say.
In the manner of these things, you, like Caesar’s wife must be seen to be beyond suspicion.
So, sell the property at the full market value. Keep records and you’ll be fine. No capital gains to pay.
And, my second assumption, on your downsizing, you’ll be able to keep the value of the more expensive house as part of the Residential Nil Rate Band. We’ll talk about that another day.
Ade Oduyemi helps ensure your wealth is transferred down the generations. His mission is to ensure a generation or two hence, your new money becomes old money. You can get a free copy of his latest book, Maximum Inheritance here.
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