Last updated 05:30, Friday, 13 June 2008

When you sell your own home the question of Capital Gains Tax (CGT) rarely rates a mention.

A place in the country: How does it stand for Capital Gains Tax?

This is despite the fact that, even with the credit crunch, most people will have seen a decent increase in the value of their property during the time they have owned it.

CGT does not apply because there is a specific exemption from tax for an individual’s main residence.

Sometimes people have more than one property, however, and then CGT is an issue.

With a little bit of forward planning it is often still possible to keep the charge in check.

The first step is to consider whether or not you can use the main residence exemption.

This is not an all-or-nothing tax break but applies to certain periods of a property’s ownership when it has been treated as your main residence.

In other words, you should consider whether or not it is possible to switch between two or more different properties for different periods of time.

The exempt property does not actually have to be your main residence; you can choose between different properties irrespective of the amount of time you spend in each.

However, to qualify, a property has to be a residence – a property you rent out won’t count.

It has to be the main residence of the owner – not of a tenant or even of an elderly relative.

If you own your parents’ house you should be aware that CGT can be a problem for you when it is sold.

If you do pass the residence test, you have two years to make the choice – but you can then switch between the properties.

Once a property has been a main residence, the benefits can be substantial.

Not only do the rules allow you up to three bonus years of exemption at the end but, rather unusually, they also permit some of a period when it was rented to be exempted.

The recent popularity of buy-to-lets means that these issues will be of concern to large numbers of investors. My colleague Paul Dickson will be commenting on the future of this sector for investors in a forthcoming article but anyone intending to realise their investments in rented property in the next few years should take tax advice now to minimise CGT.

If you have sold your second home and there is still some CGT to pay then how is it calculated and when and how does it have to be paid?

If the remaining taxable capital gain is less than £9,600 then there is no tax to pay – although you may still have to report it to HM Revenue & Customs.

Any gains over that amount are taxed at 18 per cent. You report the gains to the tax office on a self-assessment tax return. If you are not sent a tax return as a matter of course, you are obliged to ask for one if there is tax to pay.

If a property is sold during the current tax year, the tax has to be paid by January 31 2010.

For advice on all tax aspects of property ownership call freephone 0800 195 2161 or email moneymatters@armstrongwatson.co.uk