Ensure clients claim maximum relief for absences
Capital gains tax relief recap
Private residence relief (PRR) broadly exempts any gains arising on a residential property sale for periods where the property was occupied as a main residence, and prevents people from having to pay capital gains tax (CGT) whenever they move house. PRR also generally extends to the grounds and outbuildings around the main building, subject to certain conditions. HMRC’s Helpsheet 283 is a useful introduction to the basics (see Follow up ).
On a residential property disposal, the length of time the owner occupied the property as their main residence must be compared to the total ownership period. If they are identical, then nothing further needs to be done and any gain is exempt from CGT.
If there are periods where this is not the case, any gain (or loss) must be apportioned accordingly.
Pro advice. Where a UK resident has CGT to pay on a UK residential disposal, they must declare this to HMRC within 60 days and make a payment on account of the tax due.
Pro advice. Non-UK resident individuals disposing of any UK property must declare the disposal, regardless of whether CGT is actually due.
Pro advice. The final nine months of ownership always qualify for PRR, provided the property was occupied as the main residence at some point.
Married couples and civil partners
Unmarried couples can have a main residence each, but if they marry (or enter a civil partnership) they must choose one to share. In such situations, or where a second residence is acquired without disposing of the first, your client has two years to nominate which one is their main residence, otherwise the decision is made based on the balance of facts.
Example. Salma purchased her home on 1 January 2015 and lived there until 1 January 2020 when she married and moved to her husband’s home. Salma’s original home was then sold on 1 January 2022. She therefore owned the property for 84 months and it was her main residence for 60, so including the final nine months she can exempt 69/84 of any gain and will pay CGT on the remaining 15/84, after taking into account her tax-free annual exemption.
For property owned prior to 31 March 1982 the PRR ownership period commences at that date and the actual purchase price can be substituted for the value as at 31 March 1982.
Deemed occupation
So far, the position discussed has been straightforward. However, certain periods of absence are permitted to count as if the property had been occupied, and so don’t affect the availability of PRR. S.223 Taxation of Chargeable Gains Act 1992 (TCGA) permits the following:
- Up to 36 months’ absence for any reason.
- Up to 48 months’ absence where the taxpayer can no longer occupy the first property due to working elsewhere in the UK.
- Any period where the taxpayer is working outside the UK.
- Where your client meets 2 or 3 above, their spouse also acquires the same period as a deemed occupancy.
The 36/48 month periods do not need to be sequential and so can be several shorter periods over the ownership of the property.
Pro advice. A crucial condition which is sometimes overlooked is that your client must occupy the property as their main residence both before and after the period of absence for it to qualify, unless they are prevented from doing so by their employer and are relying upon 2, 3, or 4 above. To illustrate, Salma from the previous example couldn’t use the 36-month rule to increase her PRR entitlement as the property was not reoccupied.
Lettings relief used to be available to reduce the gain subject to CGT where the owner let out their property during an absence. It is now only available where the owner lets out part of their main residence while continuing to occupy the remainder.
Example. Alice and Bob bought their first home in Newcastle just before their marriage in 2014. Shortly thereafter, Alice started a job in Newcastle and three months later was seconded to Birmingham, living locally in rented accommodation with Bob, who found work in Birmingham, for two years.
Bob’s employer then seconded him abroad and so Alice left her job and, after moving back to their Newcastle home for a month to make preparations, they left the UK for France. After six years this secondment became permanent and their UK home was sold in 2022.
Without the benefit of s.223 almost the entirety of any gain on the sale would have been subject to CGT, but all the above periods of absence fall within permitted absences 2,3 and 4 and so qualify for PRR. Alice and Bob do not have to pay any CGT on the disposal, no matter the size of the gain.
Case law - intention to occupy
Given how little time Alice and Bob spent in their residence above it is possible HMRC could attempt to argue that the property never became their main residence. However, provided they intended to occupy it as their main residence when they acquired it, they should be safe from such a challenge, as the case of Core v HMRC [2018] TC5685 (see Follow up ) illustrated.
Mr and Mrs Core (C) rented a property and purchased another with the intention of renovating and extending the second. Once this property was ready they moved in, but almost immediately disposed of it. HMRC argued that C intended to sell the property when they moved in (they had in fact received repeated offers from the eventual buyer before occupation) and so knew the property would not be their main (and so indefinite) home, denying them PRR.
The First-tier Tribunal (FTT) disagreed with HMRC and allowed C to benefit from PRR, confirming that it is the intention of the taxpayer when they first occupy the property that matters, not the actual length of time they then remain.
Case law - delay in occupation
In addition to the permitted periods of absence, s.223ZA allows an initial period between purchasing and moving into a residence to qualify for PRR. Broadly, where a residence is acquired but the owner doesn’t immediately move in, the period can still qualify for PRR if the reason for the delayed occupation is either:
- that the property acquired was being constructed, renovated, redecorated or altered; or
- that the previous main residence had not been disposed of when the new property was acquired.
A related matter was considered in Higgins v HMRC [2019] EWCA Civ 1860 ( see Follow up ). Mr Higgins (H) had exchanged contracts to purchase a renovated apartment in the former St Pancras Station Hotel in London. Once the work was finished he completed, paid the remaining balance and moved in immediately. On the eventual sale, HMRC restricted the PRR available to reflect the period between exchange and completion where the property was unoccupied. H appealed.
The FTT agreed with H; the Upper Tribunal (UT) with HMRC, leaving the Court of Appeal to have the final say. Thankfully it disagreed with the UT and confirmed that the PRR period commenced on completion; to have it start at exchange could have affected countless taxpayers in the exchange-to-completion period limbo.
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