Tax aspects of your home
Tax relief is not available on interest for loans used to buy your home.
Letting part of your home
Under the rent-a-room scheme, income from letting furnished rooms in your home will be exempt from tax if the gross annual rent does not exceed £7,500 (£3,750 if the property is jointly-owned).
Income from agencies, such as Airbnb, qualifies for this income exemption providing you live in the house as your main home at some time in the tax year.
If you are letting to lodgers who live as part of the family, there will be no loss of capital gains exemption. Otherwise, there may be some restrictions.
Your main residence is exempt from capital gains tax when you sell it. Please seek our advice if you have not occupied the house as main residence throughout the period of ownership.
Various rules allow periods of temporary absence to be disregarded.
If you have more than one house
- You may elect which house is to be your main residence (i.e. exempt for capital gains tax) within two years of acquiring the additional residence. Otherwise the question must be decided on the facts at the time of disposal. Once made, the election can be varied at will.
- So long as a house has at some time been your main residence for capital gains tax, the last 18 months of ownership are counted as owner-occupied. This period will reduce to nine months in 2020.
- It may be beneficial for a married couple to own the non-exempt residence jointly as each will be entitled to the annual capital gains tax exemption.
Partial use for business
- If you use part of your home exclusively for business, interest on the relevant portion of the borrowing will be allowed as a business expense.
- In these circumstances, a similar proportion of the capital gains exemption will be lost. However, if you use no rooms exclusively for business purposes, the full exemption will normally be preserved.
Selling adjoining land
- The capital gains exemption extends to grounds not exceeding half a hectare (about 1.2 acres). A larger area may be exempted if it is appropriate to the size and character of the house. Exemption is lost if the house is sold first and the land later.
The main problem is that it is very difficult for a person to give away property but still continue to occupy it.
You could consider moving to a smaller home, creating a tax free gain that can be given away, or to reduce the value of the home by increasing the mortgage and giving away the proceeds.
Clearly these are drastic steps, and underline the fact that inheritance tax planning is better directed at assets other than the family home.
The residence nil-rate band is available to cover part of the value of the family home, or the proceeds of sale if the deceased had sold the property to "downsize". However, the home or funds must be left to direct descendants (including step and adopted children).
Please contact us if you would like more help or advice in this area.