Capital Gains Tax explained

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It goes without saying that your home is one of the most valuable things that you’ll ever own – so you’ll naturally want to make sure you’re doing everything you can to keep hold of as much money as possible if you come to sell it.

As a limited company contractor, you’ll be exempt from paying Capital Gains Tax (CGT) on the sale of your property – as long as it’s been used as your main residence.

But how does it all work? To help clear things up, we’ve created this handy guide:

Will my property be exempt from Capital Gains Tax?

Although there’s no minimum length of time you have to live in your property before claiming tax exemption, you’ll probably struggle if you’ve only been there for a couple of weeks. You also won’t qualify if you sell an investment property that you’ve never lived in yourself.

If your property and associated land exceed half a hectare (or 1.25 acres), you might struggle to claim an exemption. There are some exceptions, for example if the land is deemed appropriate to the size of the property and is required for the reasonable enjoyment of it.

What if I have more than one residence?

If you’re lucky enough to have more than one property that you divide your time between, you’ll have to decide which one you want to receive your exemption for. The same is true for married couples or those in a civil partnership who have kept their own homes.

You’ll need to decide which home to claim for within two years of buying your second property (or third if you’re really lucky).

What if I want to sell some of my land separately?

If you decide to sell off some land for somebody else to build on, you’ll be exempt from CGT as long as you still own the rest of the property, and the total area was within the half a hectare limit.

For anything larger than this amount, an exemption is still available if you can prove that the land you sold was needed for the reasonable enjoyment of the property – rather difficult if you were prepared to sell it in the first place!

If you decide to sell off your house and part of the garden, then sell the rest of it later on, you’ll only be entitled to an exemption for the first sale. This is because the second plot of land is no longer part of your main residence.

What if my property is used for business purposes?

As a contractor, you may find that you work from home a lot during the course of your career. If you decide to sell your home, you’ll only be exempt if you can prove that no part of the property was exclusively for business use.

If you can’t do this, then you’ll be charged CGT on the proportion of your home that was exclusively for business use.

I’m away from my property on assignment, am I still eligible?

If your assignment keeps you away from your property for extended periods of time, you may still be entitled to an exemption. This depends on your circumstances and length of absence, so it’s worth speaking to an expert to see if the rules apply to you.

My property is owned by a trust

If your property is owned by trustees and used by one of the beneficiaries as their main residence, you’ll still be eligible for a CGT exemption.

Need more help?

We hope we’ve managed to shed some light on the ins and outs of Capital Gains Tax. If you need a bit more help, there’s no need to worry.

At ClearSky Contractor Accounting, we understand that no two cases are ever the same. That’s why we’ll provide you with tailored advice to suit your own personal circumstances.

We’re committed to helping our clients make the most of their hard-earned money and find individual solutions that are right for them. We’ve helped thousands of contractors make the most of their finances, so why not join them?

For more information, please call 0800 032 5326 or email enquiry@clearskyaccounting.co.uk.

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