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Q&As
Will I need to pay capital gains tax on my current home after starting a self build?
Hi, I own my own house, estimated at £500,000, I am thinking of buying some land and building on it. I will be funding the land purchase and the first phase of build with an interest-only mortgage on my home. Then would need to sell it to complete the build. My question is, will I have to pay capital gains on my old house when I sell it, as I will then have two homes?
Many thanks
One Answer
Hi Bernadette,
A. Your old house will qualify for full private residence relief and no capital gains tax would be due if all the following conditions are met:
i. the dwelling house has been your only or main residence throughout your period of ownership.
ii. you have not been absent, other than for an allowed period of absence or because you’ve been living in job-related accommodation, during your period of ownership.
iii. the garden or grounds including the buildings on them are not greater than the permitted area.
iv. no part of your home has been used exclusively for business purposes during your period of ownership – this includes working from home using a room that is not exclusively used for business purposes.
B. You can nominate either home to be your main residence. Take care over the dates by which this must be done.
C. The period of ownership ends when you sell your home. The final nine months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point.
D. If the dwelling house has not always been your only or main residence, you’ll need to split the gain. When calculating the proportion of the gain eligible for relief, you multiply the gain by a fraction equal to the periods of occupation (including the final nine months where appropriate) divided by the period of ownership (both periods starting from 31 March 1982 if the house was owned before that date). You do not introduce valuations of the property at the dates of changes of use.
I strongly advise you to also seek proper professional advice, as your specific circumstances may change the advice, and mistakes will be expensive!
Best of luck with your project plans.
Katherine Taylor (finance director, Build It)