Angela Rayner purchased a four-bedroom property after she and her husband made almost £200,000 selling their former council houses.
The couple appear to have made around £182,500 after selling two homes they owned in the Stockport area of Greater Manchester in the mid 2010s.
Ms Rayner is facing scrutiny over whether she or Mark Rayner, her husband at the time, paid the right amount of capital gains tax when the two properties were sold.
Despite the couple both selling their homes, Ms Rayner was the sole owner of their new four-bedroom house, bought in 2016.
Ms Rayner sold her council house on Vicarage Road for a gain of £48,500 in March 2015 while Mr Rayner made £134,000, when he sold his in April 2016.
That same month, almost a year after Ms Rayner was elected MP, she purchased a £375,000 property in her new constituency of Ashton-under-Lyne.
The four-bedroom red brick house has three reception rooms, a large secluded garden and two detached garages, according to the Rightmove listing from the time.
The deputy Labour leader sold her house in Vicarage Road for £127,500 in 2015 and, according to official Land Registry documents, bought the property in Ashton-under-Lyme.
On the same day Ms Rayner bought the house, her husband sold his Lowndes Lane home for £145,250, according to Rightmove.
However, despite Mr Rayner being listed on the electoral roll for the property from 2017 along with Ms Rayner and her son Ryan Batty, she is the only proprietor named on official documents. The couple are understood to have separated in 2020.
In 2022, Mr Rayner applied for home rights under the Family Law Act, which prevents one person from being able to sell a house and leave the other homeless.
Greater Manchester Police is investigating whether any offences were committed, and is understood to have spoken to neighbours about Ms Rayner’s living arrangements.
Ms Rayner has repeatedly insisted she has done nothing wrong, but has declined to publish details of her tax affairs. She has said she will “do the right thing and step down” if she is found to have committed a criminal offence.
The Labour Party and Greater Manchester Police have been contacted for comment.
What are capital gains?
You have a capital gain when you sell an asset or investment for more than it cost you to acquire it. If you purchased $100 worth of stock and then sold those shares for $150 two years later, for example, you would have a capital gain of $50. On the other hand, when you sell an asset for less than its original purchase price, that’s called a capital loss.
Capital gains and losses can occur with many types of investments and property, including stocks, bonds, shares in mutual funds and exchange-traded funds (ETFs), rental properties, cottages and business assets. Capital gains generally do not apply to some types of personal-use property, such as cars and boats, whose value tends to decrease over time. They also don’t apply to the property you live in—your principal residence.
Capital gains are taxable in Canada. The value of a capital gain is treated as income earned during the tax year in which it was realized. There are, however, important exceptions to these rules, which we’ll run through below.
Watch: Capital gains tax, explained
What is the capital gains tax rate in Canada?
Many Canadians mistakenly believe that the entire capital gain is taxed at a rate of 50%. In fact, only 50% of a capital gain is taxable, and the rate depends on where you fall within the federal and provincial income tax brackets in the year you report the gain. The gain is added to your taxable income. There’s no single “capital gains tax rate” in Canada, because the rate depends on how much you earn. The higher your total income (including employment) is for the year, the more tax you can expect to owe on a capital gain.
Also important to know: A capital gain is taxed only once it is “realized,” meaning the asset has been sold. As long as the gain is “unrealized,” meaning the asset’s value has increased on paper but the asset remains in your possession, you do not have to pay taxes on it.
Let’s say you realize a capital gain of $50,000 this year. Half of that amount ($25,000) must be reported as income on your tax return when you file next year. If you fall in a 33% marginal tax bracket—the highest federal tax rate in 2023—the additional $25,000 in income results in $8,250 in taxes owing. The remaining $41,750 is yours to keep. And if you fall within a 26% marginal tax bracket, the same capital gain results in $6,500 in taxes owing—meaning you keep $43,500.
With the tax rates we currently have in Canada, and the fact that only half of a capital gain must be reported as income, no one is paying more than 27% in capital gains tax. Most people pay much less.
How to calculate capital gains and losses
You can calculate whether you have a capital gain or loss by subtracting the asset’s net cost of acquisition from the net proceeds of its sale.
As simple as that may sound, there’s a bit more to it. To ensure you follow capital gains tax rules as set out by the Canada Revenue Agency (CRA), you’ll need to know the adjusted cost base (ACB), outlays and expenses, and proceeds of disposition.
Key takeaways
- Typically, the longer you hold on to your home, the better you will fare financially when it comes time to sell.
- Five years is generally considered a good rule of thumb in the industry, but it’s not mandatory.
- It’s important to consider the broader economy, as well as tax implications and closing costs, when deciding whether to sell.
When you bought your home, you probably paid loads of money to make it happen. But now, for whatever reason, it feels like time to move on. Naturally, you want to make a profit on the sale — or not lose money, at the very least. So, is there an optimal amount of time you should keep living there before you list it? How long do you have to own a house before selling?
There’s no simple answer. To figure out what works in your case, you first need to crunch some numbers. Estimating the costs to close a sale and to move, analyzing local real estate market conditions and — most of all — figuring the amount of equity you have in your current home are all important factors to consider before selling your house.
Reasons you may need to sell your home
According to research from the National Association of Realtors, the most common reason that people sell their homes is because they want to be closer to friends and family — a great motivation to move. Here are some other common factors that can lead a homeowner to sell:
- Your finances have changed: People often opt to move for financial reasons. Perhaps you’ve lost your job, your income has dwindled or you’ve experienced a divorce or change in your living situation. Of course, there can be happier reasons too. Maybe your income has grown significantly, or you’ve gotten married and now have a bigger shared budget to start fresh together with a new property.
- You need more space: The second most-common reason for selling a home, according to the NAR study, is because it’s too small. Whether you’re expanding your family, need a dedicated home office for remote work or simply longing for a bigger backyard, selling for more square footage is totally understandable.
- You need less space: On the opposite end, perhaps you’re an empty-nester and a four-bedroom property is simply too much to take care of now. Downsizing can make life more manageable.
- It’s a seller’s market: While you should think of your home as a home first and an investment second, sometimes the housing market seems so advantageous for sellers that you can’t resist the opportunity to make a big profit. This is especially true if your property’s value has appreciated significantly since you purchased it.
How long should you own a house before selling it?
There is no hard-and-fast answer to the “how soon can I sell?” question. But on the whole, the longer you hold on to your home, the better you fare financially when it is time to sell. This relates to the concept of building equity in your home.
Home equity is, on a basic level, the difference between your home’s market value and the amount you still owe on your mortgage. So, if you put a 20 percent down payment on a $300,000 house when you buy it, your initial equity stake is 20 percent of that, or $60,000. With each payment made toward the principal, you increase your equity a little bit, which adds up over time. The longer you wait to sell, the less you’ll owe on your mortgage, which means you’ll be able to hold on to more of the profits from the sale.
The dollar amount of your equity also increases as your home’s value increases. That’s another reason why it behooves you to wait: Home prices tend to rise over time, and the recent pandemic-fueled housing craze made them rise even faster: Between January 2020 and August 2023, the typical home in the U.S. gained 19 percent in value, adjusting for inflation, according to data from the Federal Reserve Bank of Chicago. That equates to an appreciation rate of about 5 percent per year.
The five-year rule
When it comes to timing, the real estate industry refers to the “five-year rule” as a good rule of thumb when deciding how soon to sell your home. This has to do with the amount of equity the average homeowner has built in their home after five years of possession, and it also takes into account the costs associated with selling a home (and, if applicable, with purchasing a new one).
“Five years is a good, comfortable mark,” says Lawrence Yun, chief economist at NAR. “If the price of your home appreciates considerably, then even three years would be fine.”
It’s also important to think about what the broader economy looks like whenever the five-year mark arrives. For example, if you bought your home in 2019, the average 30-year mortgage rate was around 4.13 percent. At the beginning of 2024, average rates have hovered near the 7 percent mark, which means that if you need to buy a new house after you sell, you’ll pay a significantly larger amount of interest.
What to consider before selling
Initial costs
Your net proceeds are not the same as your home’s purchase price, even if a buyer pays above ask. For one thing, you have to take into consideration how much you paid for the property in the first place, and how much you owe if you are still paying off a mortgage. Beyond that, there are all sorts of expenses associated with selling your home. All this needs to be figured into whether it makes financial sense for you to sell now — crunch the numbers to see if you will walk away from the sale with enough profit to make it worth your while.
Closing costs
A seller’s closing costs generally come out of the home’s purchase price (they aren’t usually paid out of pocket). The amount will vary depending on many factors — your property’s final sale price, what state you’re located in, local property tax rates, whether you hire a real estate attorney and more.
Real estate commission fees are also traditionally paid for by the seller and typically range between 5 and 6 percent of the sale price. This can be a significant chunk of change: On a $300,000 sale, 5.5 percent comes to $16,500 taken out of your proceeds.
Capital gains taxes
If you stand to make a large profit on your home sale, you’ll want to think about one more thing before you sell: capital gains taxes. Residential real estate counts as a taxable asset, just like a stock. However, there’s a loophole, so to speak: The IRS generally allows homeowners a profit of up to $250,000, or $500,000 if married and filing jointly, before the capital gains tax kicks in.
But there are two big conditions: You have to have owned the property for at least two years, and it has to be your primary residence for at least two out of the five years immediately preceding the sale. So if property values in your area have skyrocketed and you want to cash in, two years is the amount of time you’ll want to wait to avoid paying the IRS.
Find a local real estate agent
Choosing a real estate agent is one of the most important stages of the home-selling process. You want someone who is well-versed in your local market. This person will be responsible for helping you set your listing price, hosting open houses, scheduling showings, negotiating with buyers and ushering you through the closing process. It’s a lot, and it’s much easier if you’re doing it with someone experienced, knowledgeable, trustworthy and pleasant to work with.
FAQs
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Generally, yes. Even if your home has appreciated speedily, you likely stand to lose money if you sell before the one-year mark. You aren’t likely to have built up enough equity after such a short time to make up for the closing costs you paid when you bought it, as well as the closing costs and commissions you’ll have to pay when you sell. In addition, capital gains tax is high on assets owned so short a time.
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Yes. You can buy another house while you’re selling your old one, and many people do. However, this does complicate your financing. You may wish to consider a mortgage contingency as a part of your real estate contract on the newer home. You might also consider back-to-back escrow, which facilitates the simultaneous selling and buying of properties.
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Once you have lived in a home for two years as your primary residence, the IRS will allow you to realize a profit of $250,000 before applying the capital gains tax to your earnings.
Interestingly, if he makes this election in the future, he can elect to treat the condo as his principal residence for up to four years before he moved into it, which may wipe out all but one year of taxation divided by the total years you all own the property.
Does an owner pay capital gains tax for moving into a rental property?
It depends on the steps taken. Liljana, I think your son can make a 45(3) election in the future. Although you and your husband could as well, it may lead to more tax later on your home. You might need to pay some capital gains tax now on the condo’s change in use to personal use. You might also need to pay more tax later on the subsequent appreciation as well from the time your son moved into it to the time you transfer it to him or sell it, or upon the second death of you and your husband. This appreciation will also be taxable, assuming you want to preserve your principal residence exemption for your house.
You can claim a property that your child lives in as your principal residence if it is legally or beneficially yours. But this has tax implications for your own home.
Ask MoneySense
I bought a condo in 2006 in another province for my daughter to live in. It’s registered in my name. I also have a house in another province. I am planning to sell the condo my daughter lives in very soon. Can I claim capital gain exemption in the condo she lived in all these years?
—Bill
Capital gains tax when selling a home your child lives in
Canadian taxpayers may be eligible to claim the principal residence exemption when they sell real estate. Since 2016, real estate transactions have been under more scrutiny with the Canada Revenue Agency (CRA) since taxpayers now need to report all sales on their tax returns, even if the sale is of a tax-free principal residence.
The definition of principal residence for tax purposes
According to the CRA, in order for a property to qualify as a principal residence, it must be:
- A housing unit, which can include a house, a condo, a cottage, a mobile home, a trailer, a houseboat, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation;
- Owned by the taxpayer, jointly or otherwise, legally or beneficially;
- Ordinarily inhabited in the year by the taxpayer, their spouse or common-law partner, their former spouse or former common-law partner, or child.
There can be nuances in the principal residence guidelines that may impact your ability to qualify for the exemption. Some examples are if your home was rented out or used for business purposes, if the acreage is significant, or if you owned another property during the same years that you owned the property in question and claimed the principal residence exemption for it.
Legal versus beneficial ownership of a property
An important nuance for you, Bill, is whether your daughter beneficially owned the property. If she did—meaning you were on title, but it was technically hers—she may be able to claim the principal residence exemption herself. This could be the case if she paid all of the ongoing expenses, amongst other criteria. But then the question may be where did the down payment come from, and if the property was in fact beneficially your daughter’s, but legally in your name, why did the two of you not put it in her name in the first place?
Do I pay capital gains tax on property?
If you sell a property in the UK, you might need to pay capital gains tax (CGT) on the profits you make.
You generally won’t need to pay the tax when selling your main home.
However, you will usually face a CGT bill when selling a buy-to-let property or second home. You may also need to pay CGT if your home is partly used as a business premises, or if you lease out part of your property.
Video: capital gains tax on property
The video shows how capital gains tax works when you sell a property that’s not your main home.
CGT rates on property
In the UK, you pay higher rates of CGT on property than other assets.
Basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional-rate taxpayers pay 28%.
With other assets, such as shares, the basic-rate of CGT is 10%, and the higher-rate is 20%.
Bear in mind that any capital gains will be added to your other income sources when working out which income tax bracket you’ll fall into for the year, and therefore might push you into a higher bracket.
All taxpayers have an annual CGT allowance, meaning they can earn a certain amount tax-free.
In 2023-24 you can make tax-free capital gains of up to £6,000 – down from £12,300 in 2022-23. The allowance is due to be cut further in 2024-25, so you can earn just £3,000 tax-free.
Couples who jointly own assets can combine this allowance, potentially allowing a gain of £12,000 without paying any tax.
You’re not allowed to carry over any unused CGT allowance into the next tax year – so if you don’t use it, you’ll lose it.
You can find out more in our guide to capital gains tax rates and allowances.
How much CGT will I pay?
As the name suggests, CGT is only charged on the gains you make (the profit), rather than the full amount you sell the property for.
To work out your gain, you can deduct the amount you originally paid for the property from the sales price.
You can also deduct any legitimate costs involved with buying and selling the property. This includes things like broker fees, stamp duty, and some improvements to the property that were made while you owned it.
You can also offset losses you’ve made when selling other assets. For instance, if you own several properties and make, say, a £50,000 loss when selling one of them, you can use that against the gains you make from another property and therefore reduce your overall CGT bill.
You should claim any losses on your self-assessment tax return, or by calling HMRC. You can claim losses up to four years after they were incurred.
For any taxable gains above the tax-free allowance of £6,000 in 2023-24 (£12,300 in 2022-23), you’ll pay the CGT property rates.
- Do your 2022-23 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.
When is capital gains tax on property due?
For UK properties sold on or after 27 October 2021, you must pay the tax owed within 60 days of the completion of the sale or disposal.
You’ll do this by submitting a ‘residential property return’ and making a payment on account.
For property sales made between 6 April 2020 and 26 October 2021, the window to pay your CGT bill was 30 days.
What can I deduct from my taxable gain?
You’re allowed to deduct certain costs from your gain, if they’re involved with buying and selling the property. These include:
- solicitor and estate agent fees
- stamp duty when buying the property.
Costs involved with improving the property, such as paying for an extension, can also be taken into account when working out your taxable gain.
However, you’re not allowed to deduct costs involved with the upkeep of a property. You’re not allowed to deduct mortgage interest either (though that can reduce the tax you pay on rental income).
Example of selling a second home
Someone is selling a second home in England in 2023-24 for £220,000 after buying it 10 years ago for £120,000.
Their capital gain is the increase in the property value, which is £100,000.
However, they spent £5,000 on solicitor fees and estate agent fees when selling the property, which reduces their gain to £95,000.
They have no other gains or losses, so they can simply use their £6,000 CGT allowance – reducing the taxable part of their gain to £89,000.
The rate of CGT they’ll pay depends on their other income. In this case, let’s say it’s £25,000.
This means they’d pay 18% basic-rate CGT on £25,270 of their gain (taking them up to the threshold of £50,270) – coming in at £4,548.60.
They’d have to pay the higher rate of 28% on the remaining £63,730, which is £17,844.40.
Altogether, the CGT bill would be £22,393.
Capital gains tax on your main home
In most cases, you won’t need to pay CGT when selling the property you live in, because you will be entitled to ‘private residence relief’.
You won’t need to pay CGT for the time a property was your main residence, plus the past nine months of ownership (even if you weren’t living in the property during those nine months).
People with a disability, or those who move into a care home, can claim for up to the past 36 months of ownership.
That said, you may have a capital gains tax bill to pay if you:
- develop your home, for example, by converting part of it into flats
- sell part of your garden, and your total plot – including the area you’re selling – is more than half a hectare (1.2 acres)
- use part of your home exclusively for business
- let out all or part of your home – this doesn’t include having a single lodger if you are living in the property, too
- moved out of your property nine months or more ago – to move into a partner’s home, for example
- bought a home for the purpose of renovating it and selling it on.
Which property is my main home?
If you use more than one home, you can nominate which will be tax-free for CGT purposes. It doesn’t have to be the one where you live most of the time.
Generally, it makes sense to nominate the property that’s you expect to make the largest gain when you come to sell it. You have two years from when you get a new home to make the nomination.
Married couples and civil partners can have only one main home between them, but unmarried couples can each nominate a different home.
Remember, you don’t get tax relief if you bought your home just to sell it on and make a gain.
How does letting relief work with CGT?
If you have let out either all or part of a property, a proportion of any gain when you sell it could be taxable. But if you used to live in the property (or still did at the time of selling), you might be able to claim letting relief, which will reduce your capital gains tax bill.
Letting relief doesn’t apply to buy-to-let investors who let out their properties and never live in them, and it’s now only available for people who have been in shared occupancy with their tenant/tenants. You can also only claim letting relief on the proportion of the property being let, for the period of time it was let out for.
The amount of letting relief you can claim will be the lowest of either:
- the gain you receive from the letting proportion of the home, or
- the amount of private residence relief you can claim, or
- £40,000.
Note that you can’t claim private residence relief and letting relief for the same period. So, if you are letting the property out when you sell it, the past nine months of ownership will qualify for private residence relief rather than letting relief.
The exact amount of private residence relief and letting relief you can get depends on the amount you sell the home for.
How letting relief works in 2023-24
Letting relief can feel confusing. This example illustrates how to work out capital gains tax when you sell a home you have been letting out.
John has owned a property for 20 years and has decided to sell up. He has no spouse or civil partner.
He bought the property for £200,000, but sold it for £300,000, giving him a £100,000 profit, or gain. We’ve assumed this gain has no allowable costs to be deducted.
During the 20 years (or 240 months) John:
- Lived in the property for 12 years (144 months)
- He then used it as a second home for four years (48 months)
- He then let it out to a tenant for four years, while living at the property (48 months) up to the point of selling the property. The tenant occupied an area equivalent to 25% of the home.
Here’s how John works out his CGT bill for a sale in 2023-24.
The example amount that John has to pay as a basic-rate taxpayer is made on the assumption that John’s gain does not push his overall income into the higher-rate tax band.
CGT on gifted and inherited homes
Your parents or relatives may want to leave you their home in their will. When they pass away, you’ll inherit the property at its market value at the time of death.
There is no CGT payable on death, but the value of the home will be included in the person’s estate. An estate is defined as being the total of someone’s assets and property, minus any debts and funeral expenses.
Depending on the value of the person’s estate, inheritance tax may be payable on the property.
If you then sell the property without having made it your own home, there could be CGT to pay.
The tax you pay will be based on the property’s value when you sell it, compared with its value on the date of death. If the value has increased, you’ll have made a taxable gain. As with any other property gains, you’re able to deduct any associated selling costs.
If you’re given the home while the owner is still alive and living in it, this is called a ‘gift with reservation’.
Essentially, this means the value of the property will still be included in inheritance tax calculations when the gift giver passes away.
However, it may change things in terms of CGT. If you sell the property, the CGT you owe will be based on the increase in value between the date you were given the property – not the date of their death – and the date you sell it.
This is the case even though there may also be inheritance tax to pay on the home at the time of death.
Example of CGT on inherited homes
These tables explain what would happen if John inherited his father’s home.
The first table explains what would happen if it was gifted on death.
The second table explains what would happen if John was given the home 10 years before his father’s death, and his father continued to live there until he died.
With a taxable gain of £56,000, the rate of CGT depends on the rest of John’s income. He’d have to pay 18% if it made up some of his basic-rate threshold up to £50,270. Anything above that would be charged at the higher rate of 28%.
If John already received other income of more than £50,270, the most CGT he could expect to pay is £15,680, which is 28% of the full £56,000.
Which other taxes may be due on UK property?
CGT is just one of the taxes that is levied on properties in the UK, charged when you come to sell it.
When you buy a home, you will likely need to pay stamp duty on the purchase price. The amount depends on whether the property is your main home or a second home or buy to let investment.
Residents also need to pay council tax, with the amount depending on the property size, location, and a few other factors.
If you’re letting out a property, you’ll probably need to pay income tax on the rent you receive.
And, if you leave a property to someone after you pass away, inheritance tax may be charged on some of its value.