Capital gains tax on selling our house

Curdy

Hi, hopefully someone here can help as I can’t interpret the HMRC tax guidance. Currently we rent an annex of our only house out on AB&B. It is attached to our house and is connected to it at both levels. I understand we will be subject to CGT on the increased value of the annex when we sell. But if we stop renting it a few years before we sell, can we avoid the tax? Any help would be gratefully received.

Jeremy535897

The question to ask is whether the annex is ever used as part of your main residence and occupied as such. Merely leaving it unused is regarded in the same way for main residence relief as letting it. Assuming you do occupy it as one residence with your main house, then you should obtain main residence relief for the period of occupation (plus the last 9 months of ownership whether occupied as the main residence or not).

Curdy

Hi Jeremy, thanks so much for replying. We typically rent the annex out over weekends and the occasional week, for approximately 100 days per year. When it’s not being used by others, we do use it as part our main residence as it is connected to it by doorways a both levels. So would it be correct to assume that we would only pay CGT on the time it has been used as an AB&B? For example say we owned it for 10 years and 9 months before we sold the house, leaving 10 years to consider for CGT purposes. Assume we made a capital gain on the value of the annex of £30k over the 10 years. From what you said, CGT would only be payable on the proportion of time it was let out ie 1000 days (100 days per year x 10 yrs) out of 3650 days (365 days per year x 10 yrs)?

Jeremy535897

It might be worth looking at https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

Normally, for capital gains tax purposes, if you use a room for business during the day, and leisure in the evening, as part of your main residence, you need not treat any part of the gain as taxable. I know that is not on all fours with your situation, but read HS283 and note in particular the details of the 3 year absence rule.
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2023