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: 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.
We typically don’t pay capital gains tax (CGT) profit made on the sale of your home. CGT relief is therefore, one of the most valuable reliefs from which the likes of you and I would benefit.
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 you want to be on the right side of the law. But people who should have known better, who certainly knew better, in the spirit if not in the letter, flouted the law.
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 Palace of Westminster. 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.
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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