Your main home is exempt from capital gains tax when you sell it, as long as you bought the property with the intention of living in it on a permanent basis, not as a project to renovate and sell. People who have to live in job related accommodation, such as prison warders and church ministers, may have a separate tax-exempt home without having to live in it.
Some taxpayers who have taken on renovation projects have found the gain on their property doesn’t qualify for the tax exemption. This is because you must be able to prove that you occupied the property on a permanent basis while it was being renovated before the sale.
For example, Jason Moore bought a property with his girlfriend in December 2007. He claimed to have lived there while he renovated it in the period to late February 2008, when he returned to live with his girlfriend. The property was then let to tenants until it was sold for a profit in June 2012. Jason had no documentary evidence of his time at the property in the three months to February 2008, so his claim for the tax exemption failed.
Paul Gibson went much further in knocking down his whole home and constructing a new one on the same site, which he sold shortly after it was completed. Although Paul intended to live in the new property, he was forced to sell it to repay the loans he had taken out. He claimed to have occupied the finished house for about five months before the sale, but he couldn’t prove this with any documents.
If you are planning a ‘grand design’ conversion for your own home please talk to us first about the tax implications.