In the world of taxation, the Capital Gains Tax (CGT) exemption for a person’s main residence is a valuable benefit. It allows individuals to exclude the capital gains made on their primary home from taxation. However, it’s important to understand that generally, this exemption is applicable to only one home at any given time. This article aims to shed light on a couple of exceptions where two “main residences” can be considered for CGT exemptions.
Exception 1: Overlapping period for buying and selling homes
The first exception arises when an individual purchases a new home before selling their old one. In this scenario, both homes can be entitled to the main residence exemption for an “overlap” period of up to six months. This enables homeowners to enjoy the CGT exemption for both properties during this transition period. However, if the old home is not sold within six months, a partial exemption will apply to one of the homes for the period exceeding six months. Typically, the home that was not the person’s main residence during this “excess period” will be subject to the partial exemption. It’s crucial to consult with a
tax adviser to ensure the eligibility criteria for this concession are met.
Exception 2: Different main residences for spouses
The second exception involves cases where spouses have different main residences simultaneously. This situation commonly arises when one spouse resides in a country or coastal home while the other lives in an apartment in the city or another location for work purposes, commuting weekly or monthly, for example. Additionally, it includes scenarios where a couple starts living together in a married or de-facto relationship, and one spouse retains their existing home, renting it out while still applying a CGT concession to treat it as their primary residence.
To address this overlapping situation, a special rule applies. The spouses have two options: either they choose one home to be the CGT-exempt main residence for both of them, or each spouse selects their respective homes as their main residence.
Opting for the latter approach generally results in each spouse receiving only a half exemption on the home they choose for the overlap period.
Navigating complexities
It’s crucial to understand that these rules are intricate and depend on several factors. These factors include the legal interest each spouse holds in each home, the utilisation of any CGT concessions, and determining whether the parties are considered “de-facto” partners.
Given the complexity, seeking professional advice from a tax adviser becomes paramount in such situations. They can provide guidance tailored to individual circumstances, ensuring compliance with the regulations and maximising the available exemptions.
Conclusion
The CGT exemption for a person’s main residence is a valuable benefit that helps individuals reduce their tax liabilities. While generally limited to one home at a time, exceptions exist for cases involving overlapping periods during home buying and selling, as well as when spouses have different main residences. However, it is essential to meet specific conditions and seek professional advice to navigate these complex rules effectively.
Regency Partners is here to provide expert tax guidance and ensure you make the most of the CGT exemptions within the legal framework.
