If you’re considering selling a family property where a family member has lived rent-free, understanding Capital Gains Tax (CGT) is essential. CGT on property sales in the UK can significantly impact the net proceeds from the sale, and the tax implications become more complex when family occupancy is involved. As a Putney-based tax advisor with expertise in both inheritance tax and capital gains tax planning, I help clients in Southwest London navigates these complex tax rules effectively.
In this blog, we’ll explore how CGT is calculated when a property has been occupied rent-free, the impact on Private Residence Relief (PRR), and key strategies to maximize tax reliefs.
CGT applies to the sale of assets, including property, when they’ve appreciated in value. If you sell a property where a family member, such as a child, has been living rent-free, it’s important to understand the tax implications, especially if the property wasn’t your main residence.
Rent-free living arrangements can impact the CGT liability on a family property. While these arrangements do not disqualify you from PRR, they affect the extent of the relief you can claim. Here is how it works:
Let us take an example to illustrate how CGT and PRR interact when a family member lives in a property rent-free:
Imagine you purchased a property in Putney in 1995, lived in it as your main residence for 15 years, and then allowed your child to live there rent-free for another 10 years. When you decide to sell the property, you would be eligible for PRR for the 15 years you used the property as your primary residence. The 10-year period when your child lived there rent-free would not qualify for PRR, meaning that a portion of the gain would be subject to CGT. By prorating the relief based on your occupancy, you effectively reduce the CGT liability.
If you are looking to sell a family property in Southwest London or Putney, there strategies to help maximize tax reliefs and reduce CGT:
To learn more about Private Residence Relief (PRR) and how it can help reduce CGT on family properties, see our dedicated blog on Private Residence Relief and Its Role in Minimizing Capital Gains Tax for Family-Owned Properties
For insights into inheritance tax implications on rent-free family arrangements, check out our blog Do You Need to Charge Rent to Family to Avoid Inheritance Tax?
Managing Capital Gains Tax on family properties can be complex, particularly when trying to maximize available reliefs like PRR. At Lanop Business & Tax Advisors, provide capital gains and inheritance tax services in Southwest London, specializing in family-owned properties. Reach out today for expert advice tailored to your unique situation and explore our tax advisory services for families near Putney to find the best tax-saving strategies for your family’s future.
Aurangzaib Chawla is a UK-based tax advisor and Managing Partner at Lanop Business & Tax Advisors. With nearly two decades of experience, he supports individuals, landlords, and SMEs with proactive tax planning and compliance. Known for simplifying complex tax legislation, Zaib helps clients minimise liabilities while building sustainable, tax-efficient strategies for long-term success.
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At Lanop, I am providing my services as the Managing Partner and Tax Specialist. My expertise includes helping medium and small-scale businesses in their accountancy and legal requirements, business start-up support, strategic review, payroll system review and implementation, VAT and tax compliance to cloud accounting. I am also an expert in financial reporting, identifying and monitoring risks, strategic business development, client retention, market acquisition and deals closure by carefully planning my sales cycle.
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