Main Residence and capital gains tax
December Tax Newsletter
It is a well known fact that potentially any profit you make from selling your own home is free of capital gains tax. To qualify you need to be resident in the property for the entire period of ownership. However there are a number of circumstances where temporary absence from your home will not affect your tax exempt status.
Periods of absence may qualify as follows :
The final three years in all cases.
Provided that the residence has at some time been occupied as the main residence, then the last three years are always treated as occupied, even if another property also qualifies for main residence relief at the same time.
A period of up to 4 years while the owner is working elsewhere in the UK, any period of absence not exceeding 3 years in total, and any period during which the owner is employed abroad.
These rules allow those absent from their property for some time due to work commitments to sell the property without paying tax on the gains. However, in most of the above situations, it is important that you reoccupy the property as your main residence after the period of absence.
A common mistake that taxpayers can make is to leave the UK for work abroad, say for four years, and if at the end of this period the house is sold without reoccupation - the deemed occupation rule cannot apply, and the taxpayer is left seeking the shelter of the last 36 months rule to protect the gain.
Also, there must be no other property occupied as a residence during the period of absence (hotel accommodation is OK) - but this issue can be resolved by making elections within 2 years of moving into the other accommodation.
Non-residence - the 5 year rule
If you have been absent for at least 5 complete tax years, and therefore not UK resident for tax purposes, any potential gain would not be taxable - as long as the disposal was completed while you were not UK resident for tax purposes.
Letting the property.
If you let your home for whatever reason you may also qualify for "letting relief" to shelter any potential capital gain.
The relief applies to any gain attributed to the period when you let the property. The lettings relief will exempt this let gain up to a maximum of the lower of the exempt gain and £40,000. Where the property is jointly owned (e.g. if you are married or in a civil partnership) you will each have the £40,000 relief.
As you can see being absent from your house for any period, and for whatever reason, can possibly affect the capital gains tax status of any profit you make on a subsequent sale. So that we can advise you properly we would request all clients advise us in advance if changes in residence are planned. In this way we can ensure that you maximise the tax free gain available when you sell.
