Principal Private Residence Relief (PPR) – for properties that have been your main home

Letting Relief-  for properties that were once your main home and have been let out

Entrepreneurs’ Relief –  for qualifying business assets that include shares in a trading company or business assets

 

In the UK, property tax relief can help you maximize your returns on your investments, reduce your tax liabilities, and optimize your tax planning strategy. This tax relief is aimed at encouraging property investments, supporting homeownership, and boosting the housing market. Here are some ways to get tax relief when you sell your house.

 

Private Residence Relief (PRR)

 

With Private Residence Relief, homeowners in the UK can save a lot of money on capital gains taxes by selling their main house. Homeowners can maximize their tax savings when selling their property if they understand eligibility criteria, how PRR works, and practical considerations.

 

You need to meet a few eligibility criteria to get Private Residence Relief.

1. The property must have been the homeowner’s main residence at some point during the ownership period.
2. The owner must have occupied the property for part or all the ownership periods.
3. You don’t have to own it for a minimum period to get PRR. There are, however, certain conditions if it wasn’t the homeowner’s main residence for the whole time.

 

You could get full CGT tax relief under Private Residence Relief if all the below conditions are met.

1. You have one home and you’ve lived in it as your main home for all the time you’ve owned it,
2. You have not let part of it out – this does not include having a lodger,
3. You have not used a part of your home exclusively for business purposes,
4. The grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total, and
5. You did not buy it just to make a gain.

PRR Rules

• If the property you are selling was the only home at some point, then you will always get relief for the 9 months before you sell your home.
• You could get up to first 2 years relief on the property, if the property was built, renovated, or could not sell your old home, and you had lived in the property within the first two years of purchase.

 

If you nominate a property as your home, you qualify for relief for most of the time you live away,

• any reason for periods adding up to 3 years,
• up to 4 years if you had to live away from home in the UK for work, or
• any period if you were working outside the UK.

 

To qualify for Private Residence Relief, homeowners need to keep accurate records of how much they use, occupy, and own their property. If a homeowner lets out part of their main house while living there, they might be eligible for Lettings Relief, which lowers their capital gains tax.

 

You do not get PRR for the period you let out the full property or part of the property (no PRR for the part that’s let out). The property is not considered as let out if have a lodger who shares living room with you, or you live with your parents or children, and they pay rent to you.

 

Private Residence Relief works by exempting the capital gain attributable to the period when the property was used as the homeowner’s main residence from capital gains tax. The relief applies proportionally to the length of time the property was used as the main residence compared to the total ownership period.

 

For example, if a homeowner owned a property for ten years and lived in it as their main residence for eight years before selling it, 80% of the capital gain would be eligible for Private Residence Relief, and only 20% of the gain would be subject to capital gains tax.

 

How to calculate CGT on property gain after PRR?

Different PRR applies to different situation. Let’s analyse few of the scenarios:

1. Capital gain by selling a property is £150,000. Individual had the property for 20 years and lived in the property for 12 years. How much of this gain is eligible for PRR and how much CGT tax liability?

               🡺 PRR reliefs applicable: 

1. Number of years you have lived in the property, which 12 out 20 years. This means 60% of the time you have lived in the property. You will get 60% relief over gain.
2. PRR relief on last 9 months of the property, that is 9 months of 20 years, which equals to 3.75% relief.

           So, total eligible relief over gain is : 60+3.75 = 63.75%

You will get relief on £95,626 gain and will pay CGT on the remaining       amount £54,375.

 

1. Capital gain by selling a property is £100,000. Individual had the property for 20 years and lived in the property for 20 years. However, for a period of 5 years rented 10% of the property. How much of this gain is eligible for PRR and how much CGT tax liability?

        🡺 PRR reliefs applicable: 

 

1. Number of years you have lived in the property, which 15 out 20 years. This means 75% of the time you have lived in the property. You will get 75% relief over gain.
2. Number of years the portion of property was let out, which is 5 out of 20 years. As 10% of the property was let out, you will get 90% of PRR relief for these 5 years, which tax relief for 4.5 years. 
3. This means total eligible PRR tax relief is: 15+4.5 years = 19.5 years
4. This is equal to 97.5% relief over the gain, which is £145,575.
5. Remaining amount on which you will pay CGT is £4,425 which will be claimed under tenant relief. So, you will pay no CGT tax on the property sale.

In the UK, business asset tax relief can help you reduce your tax liabilities, when selling qualifying assets. This tax relief is aimed at encouraging entrepreneurship, investment, and innovation. Here are some ways to get tax relief when you sell business asset.

 

• Business Asset Disposal Relief

 

As part of the Business Asset Disposal Relief or previously known as Entrepreneurs’ Relief, entrepreneurs are encouraged to become entrepreneurs, to reward their hard work and investments, and to promote business growth and innovation. The relief offers eligible individuals the opportunity to take advantage of a 10% reduced capital gains tax rate when disposing qualifying business assets, this includes shares in trading companies, business assets, and certain types of business-related property. The 10% reduction applies to a lifetime limit of £1 million, and any gains exceeding the lifetime limit are taxed at the standard rate.

 

Qualifying Condition

Based on the business asset that is disposed, following qualifying conditions must be satisfied to qualify for the relief claim.

 

1. If you are selling whole or part of business, to qualify for Business Asset Disposal Relief, individuals must have been:
   1. a sole trader or business partner, and 
   2. have owned the business for at least 2 years.
2. If you are selling shares and shares are from an Enterprise Management Incentive (EMI), to qualify for the relief, individuals must have been:
   1. an employee or office holder of the company, 
   2. have bought the shares after 5 April 2013, 
   3. have been given the option to buy them at least 2 years before selling them, and 
   4. the company’s main activities are in trading.
3. If you are selling shares and shares are not from an EMI (which means business must be personal company), to qualify for the relief, individuals must have been:
   1. an employee or office holder of the company, 
   2. have 5% of both shares and voting, 
   3. the company’s main activities are in trading, and 
   4. either, entitled to at least 5% of profits that are available for distribution and assets on winding up the company, or disposal proceeds if the company is sold.
4. If the company stops being a trading company, you can still qualify for relief if you sell your shares within 3 years.
5. If you’re selling assets you lent to the business, to qualify for the relief, individuals must have:
   1. sold at least 5% of your part of a business partnership or your shares in a personal company, and 
   2. owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares – or the date the business closed.

 

What tax you will pay on gains?

 

Category	Tax Rate
Gains eligible for Business Asset Disposal Relief	10%
Gains not eligible for Business Asset Disposal Relief	Pay according to what income tax rate you pay

 

Gains not eligible for Business Asset Disposal Relief:

Income Tax Band	Residential Property	Other Chargeable Assets
Basic Rate	18%	10%
Higher Rate	28%	20%

 

• Business Asset Rollover Relief

In the UK, Business Asset Rollover Relief provides business owners with the option to defer Capital Gains Tax when disposing of certain business assets and reinvesting the proceeds into new qualifying assets. The relief allows businesses to restructure, acquire new assets, or reinvest in their enterprises with greater flexibility and tax advantages. By deferring CGT liabilities, businesses can preserve cash flow and reinvest capital into growth opportunities while deferring CGT liabilities. The assets that must be disposed of and acquired in order to qualify for Relief are those that are qualifying business assets. These include, for example, land, buildings, machinery, shares in qualifying trading companies, and other assets which are part of a business entity. 

 

In the event of selling the original asset, CGT liability on the gain will be deferred until a later date when the new asset is sold. Essentially, the deferred gain is rolled over to the cost of a new asset, which reduces CGT liability when it is sold.

 

To qualify for Business Asset Rollover Relief, so that you can defer from CGT, you must:

1. reinvest into new qualifying assets either within 3 years after the disposal of the asset or 1 year before the disposal,
2. your business must be trading when you sell the old assets and buy the new ones, and
3. you must use the old and new assets in your business.

 

You will get partial relief when you have part of the proceeds reinvesting in your business after selling old assets, or if you have used part of the proceeds to purchase depreciating assets (fixed plant, machinery, or equipment that is expected to last less than 60 years), you are eligible for partial relief.

 

To claim for the relief, fill in help sheet HS290 Business asset roll-over relief and include it with your Self-Assessment tax return. You can claim tax relief within the 4 years of the end of tax year when you bought or sold the asset.

 

• Incorporation Relief

An individual or partnership may be able to benefit from Incorporation Relief when they transfer their business to a company in exchange for shares without having to pay immediate capital gains tax. The company assets can include goods, equipment, and other tangible and intangible assets. Upon receiving the business assets, the company takes on the assets and liabilities transferred, and the transferor becomes a shareholder in the company. This relief allows a business owner (transferor) to defer payment of Capital Gains Tax (CGT) on the disposal of business assets when they incorporate their business into a company structure. The Capital Gain Tax liability is deferred until the shares received in exchange for the transfer are disposed of in the future. When a company transfers assets, its cost is calculated based on the market value of those assets at the time of the transfer. Incorporation Relief is automatically granted, no need to claim for it.

 

To qualify for Incorporation Relief, one must meet the following conditions, 

• be a sole trader or business partnership, and 
• transfer all the assets of the business (except cash) to the company in exchange for shares.

 

Under Incorporation Relief, you will pay no tax until you sell all your assets in exchange of shares. However, you must pay Capital Gains Tax on the cash you have received while transferring your business.

 

What amount of CGT you will pay when you sell your shares in the future?

Capital Gain Tax = Market value of the shares you received – Gain made when business was sold in exchange of shares

 

Example:

1. You sold your business in exchange for shares worth of £50,000. You made a gain of £25,000 during the process. Later when you sell your shares, on what amount you will pay the CGT?

• CGT = £50,000 – £25,000 = £25,000

 

2. Your business is worth of £50,000 and sold you business in exchange for 80% shares (i.e. £40,000) and 20% cash (i.e. £10,000). You made a gain of £25,000 during the process. How will you pay your CGT?

• You need to pay tax on the 20% of the gain in your next tax return as you have sold your company in exchange of cash, i.e., 20% of £25,000 = £5,000
• You will pay CGT on the remaining 80% of gain when you will sell these shares, i.e., 80% of £25,000 = £20,000.

Capital Gain Tax on Property

 

Capital Gain tax on a property is the tax you pay on the profit you have made by selling or disposing a property that is not your home property, i.e.,

• Second homes or holiday homes
• Buy-to-let properties.
• Business premises
• Inherited property
• Rental properties
• Any property that is not your primary residence

 

You pay tax when there’s a profit earned by selling a property and if this profit is above the exemption limit, i.e., 

 

Tax Year	Exemption on CGT gain	CGT Exemption on Trusts
2023-24	£6,000	£3,000
2024-25	£3,000	£1,500

 

Capital Gain = Selling Price – Cost Price – Acquisition cost – Improvement Expenses – Capital Losses (this year or carried forward losses of the past year).

 

You do not pay CGT if the property is:

• Transferred between spouses or civil partners,
• Given to a charity,
• Principal Private Residence Relief (PPR) for properties that have been your main home,
• Letting Relief for properties that were once your main home and have been let out, or 
• Entrepreneurs’ Relief for qualifying business assets that include shares in a trading company or business assets.

 

You must report to HMRC within 60 days on the sale made on a UK property.

 

Businesses that are in property purchase and sell

You do not pay Capital Gain tax if the purpose of your business is to buy and sell property. Instead, you pay income tax (if you are sole trader or partner) or corporation tax (if you are a limited company).

 

When you sell a property overseas

You must pay CGT depending on the residential status of the person. 

1. The person who is resident of UK will pay CGT if they dispose of an overseas property.
2. The person who is resident of UK, but permanent home is in another country, will pay CGT if the gain is more than £2,000 and they transfer the amount to UK bank.
3. The person who is not the resident of UK will pay CGT if they are returning to UK within 5 years of leaving.

 

When you sell a property in the UK

You must pay CGT depending on the residential status and qualifying criteria of the person.

1. The person who is not the resident of UK will pay:
   1. No CGT for any tax year you or your partner have lived in the UK property for more than 90 days and had nominated the property as home. Though you are not paying ang capital gain tax, you must report to HMRC about the transfer of property within 60 days of ownership transfer.
   2. You will pay CGT for the years you have used the property as let out (not as a lodger), or for business purpose, or grounds of the property is more than 5,000 square meters in total. 

Capital Gain Tax on Possessions

You need to pay tax if you make gains of £6,000 or more by selling personal possessions like, jewellery, paintings, antiques, coins and stamps, and many other. However, you do not pay pay CGT on gifts received from spouse or partner, things that have limited lifespan (less than 50 years e.g., clocks), on personal car (not used for business purposes).

Calculate how much is the gain on Personal Possessions

Capital gain is the difference between what you have paid for the item and at what you have sold it. However, in certain cases, you need to use market value of the item instead of the amount you have purchased it for, and these are:

• It was a gift,
• You sold it less than the worth,
• You inherited it, or
• You owned it before April 1982.

If your gain is within £6,000 by selling parts of the possession to the same person or different person, then you will not pay tax.

You can further reduce the CGT on the gains if your gains are between £6,000 and £15,000. Use the below formula:

1. Subtract £6,000 from the amount you’ve received.
2. Multiply this by 1.667.
3. Compare this with the actual gain – use the lower amount as your capital gain.

Capital Gain Tax on Business Assets

You must pay Capital Gain Tax when you sell or dispose all or part of business assets like, land and building, fixtures and fittings, shares, registered trademarks, machinery, or business’s reputation.

Calculate how much is the gain on Business Assets

Capital gain is the difference between what you have paid for the item and at what you have sold it. However, in certain cases, you need to use market value of the item instead of the amount you have purchased it for, and these are:

• It was a gift,
• You sold it less than the worth,
• You inherited it, or
• You owned it before April 1982.

Reliefs on Business Assets

Check out if your gains are eligible for any of the below reliefs:

1. Business Asset Disposal Relief – The Business Asset Disposal Relief is a tax reduction program that gives eligible individuals a 10% discount on qualifying gains, up to a lifetime limit of £1 million, which allows them to reduce their capital gains tax. There are certain conditions that an individual must meet to qualify for the benefits, such as being a sole trader, a partner in a business, or a shareholder in a trading company.
2. Business Asset Rollover Relief – With Business Asset Rollover Relief, business owners can defer capital gain taxes if they sell a business asset and reinvest the proceeds into another qualifying business asset, which reduces the CGT liability until the new asset is eventually sold. The deferred gain is applied to the new asset’s cost, reducing the CGT liability until the new asset eventually is sold.
3. Incorporation Relief – Individuals or partnerships that transfer their businesses to companies in exchange for shares can claim Incorporation Relief, which is a tax relief that is available to them without incurring immediate CGT liabilities. This relief allows a business owner to defer payment of Capital Gains Tax (CGT) on the disposal of business assets when they incorporate their business into a company structure. The business assets could include property, goodwill, machinery, or other tangible and intangible assets.
4. Gift Hold-over Relief – Gift Hold-Over Relief can be claimed by business owners if they transfer business assets to their spouses and children as gifts, allowing them to defer CGT on the gifts for a period. The recipient inherits the original acquisition costs of the transferor for CGT purposes, potentially reducing future tax liabilities.

Read the post to learn in detail about each of these reliefs.

Capital Gain Tax on Shares

You need to pay CGT when you sell or dispose of shares, which includes non-ISA or non-PEP shares, or units in a unit trust, or certain bonds. To calculate the gain on the shares which was given to you as a gift refer the amount the transferor paid for the shares and if the amount you have paid is less than it’s worth, then refer the amount you have paid.

 

Total CGT on shares = Selling price of the shares – Cost price of the shares – fees paid (like stockbrokers’ fees) – Stamp Duty Reserve Tax (SDRT) when you bought the shares

 

How much do you pay CGT tax if you sell shares in the same company?

CGT = Selling price of the shares – Average cost price of your shares

Example: 

You purchased 100 shares at the cost of £1 each and another 500 shares at the cost of £1.50 each. Later you sold 300 shares at the price of £550. CGT you will pay on the selling of shares is:

 

1. Calculate average cost price of the shares you have bought = Total cost price of the shares you have bought / total number of shares

= ((100 * 1) + (500 * 1.50)) / (100 +500)

= (100 + 750) / 600

= 1.41

1. Calculate the cost price of the shares you have sold = Average cost price * number of shares sold

= 1.41 * 300 = £423

1. Calculate the gain when 300 shares are sold = Selling price of the shares – Average cost price of your shares

                                               = £550 – £423 = £127

 

Shares purchased through an investment club (group of people that buy and sell shares together on the stock market) calculates gain differently. Club buys back the shares form you when you leave the club.

 

Gain on investment club shares = Selling price of the shares when you leave the club – (gain earned on the shares – loss incurred on the shares + income from the dividends + money received from the club – money paid to the club)

 

You may be able to claim below tax relief on the shares:

 

1. The Enterprise Investment Scheme (EIS) is a tax relief to individuals’ investors who invest in qualifying companies, thereby stimulating economic growth and job creation. Investors can benefit from income tax relief of up to 30% on investments of up to £1 million per tax year in qualifying companies. You could delay or reduce your Capital Gains Tax if you use a gain to buy unlisted shares in companies approved for EIS.
2. The Seed Enterprise Investment Scheme (SEIS) is a UK government initiative introduced to stimulate entrepreneurship and innovation by supporting small, innovative companies in their initial stages of development. Investors can benefit from income tax relief of up to 50% on investments of up to £100,000 per tax year in qualifying startups. You could pay no Capital Gains Tax on a gain of up to £100,000 if you use a gain to buy new shares in small early-stage companies approved for SEIS.
3. Business Asset Disposal Relief – Detailed above.
4. Gift Hold-over Relief – Detailed above.
5. Rollover Relief – Delay paying Capital Gains Tax if you sell unlisted shares to the trustees of a Share Incentive Plan (SIP) and use the proceeds to buy new assets.

Report your gain to HMRC:

You must report and pay your gains to HMRC. In a business partnership firm, the person who is responsible for tax filling will fill the SA803 form.