Property profits

By THIS IS MONEY
Updated:

 

WE have sold our house and have decided not to purchase for a few more years. We made a profit of £40,000 on the home that we sold. We intend to save this money but we were wondering if we have to pay any tax on it. PR, Swindon

Angelique Ruzicka of This Is Money replies: You will not need to pay tax on the profits you have made. Of course, you could pay tax on the money once you have invested it but this also depends on the savings vehicle you choose. This is why you always use your Individual Savings Account (Isa) allowance first.

An Isa is a tax-free savings wrapper, in which you can invest up to £7,000 annually until the 15 April 2006. The investment limit will change after this date.

In terms of tax and property, the rules are that homeowners with one residence will not pay tax on the profits they make from the sale. But, as always, there are some exceptions to the rule. The Inland Revenue says you will not have to pay capital gains tax (CGT) provided you have met the following conditions:

• You only used the residence you have recently sold as your home the entire time that you owned it.

• Throughout the period that you owned your home, it was your only home.

• Throughout the period that you owned your home, you did not use it for any purpose other than as a home for yourself, your family and no more than one lodger.

• The house and garden do not exceed 5,000 square metres.

Even if not all of these conditions are met, you may still be entitled to relief against all or part of the gain. For more information on tax relief, check out the Inland Revenue's factsheet called 'Private Resident's Relief' at www.inlandrevenue.gov.uk.

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