Most people understand that when you sell your main home the profit you make on the sale is exempt from tax. However, for this exemption to apply in full you must generally occupy the residence throughout your period of ownership.
If the property has been acquired before it is fully constructed, the ownership condition will be met for the period before it is inhabited but the occupation condition will not.
This has implications for properties which are purchased ‘off-plan’. For capital gains tax purposes the ownership period begins on the day contracts for purchase are agreed and exchanged, not on the day the contract is completed. For an off-plan purchase the contracts may be exchanged many months or years before the property is finished and ready to inhabit.
As HMRC assumes the gain on the sale of the property accrues equally over the period it is owned, a large part of the gain is allocated to the period before the owner can move in.
If this applies to you, we should review your purchase contracts before you sell the property. If the contract contained conditions which effectively included break points in the agreement to purchase, the ownership period may be calculated from a later date, which will reduce your taxable gain.
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This note was published from our Winter 2018 Tax Briefing dated December 2018
Please be aware that the information above may have changed in subsequent months.
This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.