With so many capital gains tax rules over the years, it can be hard to keep track of what the current laws are and what you’ll need to pay. However, if you’re selling a home, you’ll need to be up to date with the current rules to ensure that you’re not overpaying or receiving fines for getting it wrong.
In this blog, we’ll go through everything you need to know about the 9-month rule to ensure that the process is as smooth as possible.
Key Takeaways
- Capital gains tax is a tax that you need to pay on any profit that you make when selling your home.
- You can get exemptions for properties that are your main place of residence.
- The 9-month rule is an extra exemption that means that you don’t need to pay tax on the last 9 months of property ownership.
- The 9-month rule came into effect in April 2020, after being reduced from 36 to 18 months in 2014 and then to 9 months in 2020.
- The 9-month rule benefits a variety of situations, including those who buy a property before managing to sell their existing one.
- You’ll need a RICS-accredited surveyor to complete a capital gains tax valuation to ensure that you know the accurate value of your property at the time of sale.
What Is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax that you need to pay on the profit that you make when you sell an asset that has increased in value. This asset could be anything from a painting to a house.
For example, if you buy a house for £125,000 and sell it for £200,000, you’d need to pay tax on the £75,000 that you made in profit. It’s worth noting, however, that there is also a Private Residence Relief (PRR) that provides an exemption for any period where the property is your sole residence.
What Is the Capital Gains Tax 9-Month Rule?
When selling your property, there is an exemption period for the last 9-months of ownership, even if you weren’t living at the property over that period. This means that any gains made in value over this period are ignored, and you’ll only have to pay CGT on the gains made before then.
When Did the 9-Month Rule Come Into Place?
The 9-month rule came into effect in April 2020. The exemption previously lasted for 36 months, before being reduced to 18 months in 2014 and later 9 months in 2020 – see our blog on the 36-month rule.
The rule has been changed to reduce the unfair advantage that people with second homes could gain over those with a single residence.
How Does the 9-Month Rule Work?
For periods where you’ve owned a property that isn’t your main residence, you’ll be liable for capital gains tax. The 9-month rule essentially excludes all gains made during the last 9 months of ownership, whether you were living there or not.
For example, let’s say you bought a house in 2010 for £200,000 and it was your main residence until 2015, but then you moved into a new property, renting the original one out. In 2022, you decided to sell the property for £350,000. You would pay CGT based on:
- 2010 – 2015: During this period, you lived in the house as your main residence. This means that Private Residence Relief (PRR) would apply and you would pay no capital gains tax.
- 2015 – 2022: The property was rented out for this period, meaning that you’ll need to pay capital gains tax on it. However;
- Final 9 Months: For the final 9 months, you are still entitled to PRR under the 9-month rule, meaning that you won’t pay CGT during this period.
Overall, you would be liable to pay CGT between moving out of the property in 2015 to 9 months before selling in 2022.
Who Benefits From the 9-Month Rule?
The 9-month rule has a few different use cases that make it beneficial in different scenarios. These can include:
- Homeowners who move before they’re able to sell: When buying a new home, there is often an overlap between buying a property to move into and selling your old home. This exemption allows for 9 months between buying and selling.
- Landlords & homeowners with multiple homes: You can claim tax exemption for at least a portion of your ownership period.
- Those moving into care homes: If you need to move into long-term care, the 9-month rule provides a period where you’re able to sell your old home without paying CGT.
Who Can Value a House For Capital Gains Tax?
To value your property for capital gains tax, you’ll need an experienced RICS-accredited surveyor. They will be able to value your property based on the value at the time of sale and provide you with an accurate valuation that will be accepted by HRMC.
If you’re looking for a trusted surveyor for a capital gains tax valuation in the South East of England, look no further than Crest Surveyors. We work with you to provide a detailed valuation that avoids any unnecessary jargon so that you understand every aspect of your property.
Get in touch with a member of our team today to discuss your requirements.