In my last article, I looked at the boundary between property investment and property development and explained some of the differences in tax treatment. For many investors, staying on the investment side of this rather fuzzy boundary can lead to very significant tax savings.
In some cases, those tax savings can be greatly increased when we also factor in the principal private residence exemption: the exemption that applies to capital gains arising on a disposal of your own home.
In fact, your own home probably provides the best opportunities you will ever get to make large capital gains with little or no exposure to tax. But, to get the most benefit from your property, it remains absolutely essential to maintain its status both as a capital asset, and as your home.
Many people are able to enhance the amount of the tax-free capital gain on their home by making improvements to the property.
However, where expenditure is incurred specifically for the purpose of realising a profit on the sale of the property, HM Revenue and Customs ('HMRC') is able to deny part of the principal private residence exemption.