The six-year rule, and the valuation nobody told you about.

How the exemption works, briefly

A dwelling that is your main residence for the whole period you own it is generally exempt from CGT. The complications begin the moment that is not quite true: you moved out, you rented a room, you ran a business from the garage, or you owned two homes during a move.

In each of those cases the exemption becomes partial, and the taxable portion has to be measured. Measuring it almost always requires a market value at a specific past date.

The first-used-to-produce-income rule

If you first use a home to produce income after 20 August 1996, you are generally treated as having acquired the dwelling at its market value on the day it was first rented out. Your original purchase price stops being relevant.

This is a taxpayer-friendly rule: it wipes out the capital growth that accrued while the property was genuinely your home. But it only works if you have a valuation as at that date. Owners who sell first and ask questions later end up trying to reconstruct that value under time pressure, or paying tax on growth that was never taxable.

The six-year absence rule

Having moved out, you can continue to treat the dwelling as your main residence for up to six years while it is producing income, and indefinitely if it is not. During that period no other property can be treated as your main residence.

The six-year clock resets if you move back in and later leave again. Where the total absence exceeds six years, the excess period is taxable and the gain is apportioned across the ownership period, which is where the valuation and the arithmetic meet.

Partial exemptions and apportionment

Apportionment can run on two axes at once: time, and floor area. A home rented for part of the ownership period is apportioned by days. A home where one room was let, or where a portion was used for a business with a place-of-business character, is apportioned by area as well.

Where the property was substantially renovated or extended during the income-producing period, those improvements also need to be identified and valued separately, because they change the comparison between the two dates.

Getting the valuation date right

Before instructing anyone, write down the history of the property as a timeline: purchase, occupation, moving out, first rented, any periods of re-occupation, any renovations, and the sale or intended sale.

That timeline is what determines whether you need one valuation or two, and on which dates. We will read it and tell you before you commit to a fee. It is a five-minute conversation that routinely saves five figures.

Common questions