A client is in the process of selling their main residence and has asked if there would be any capital gains tax to pay on disposal.The property, located in Manchester, was acquired in March 2010 and the client lived there until March 2016 – they had taken a job in London and decided to rent a flat there, renting out the property in their absence. They were made redundant in February 2021 and moved back into the property in Manchester in March 2021.
At the time any gain on a potential disposal of the property would be relieved by Principle Private Residence relief (PPR) for the period of occupation and letting relief for the time when the property was let out. With the changes to letting relief from 6 April 2020, are there any other reliefs that my clients could benefit from?
Prior to 6th April 2020, letting relief was available on the disposal of a main residence where part of the property had been ‘wholly or partly’ let at any time in the period of ownership. Section 223B TCGA 92 now requires that part of the property be the individual’s only or main residence whilst another part of the dwelling is being let out. This is likely to only apply in limited circumstances now, and as our client’s property was let out whilst they were not in occupation, letting relief is no longer available.
There is however another rule we can consider. Section 223(3) TCGA 92 allows for certain periods of absence from a property to be treated as a period of occupation when calculating the amount of principle private residence relief available.
In summary, these are:
- Any periods of absence, for whatever reason, that do not exceed 3 years in total,
- Any periods of absence, no matter how long, during which the individual or their spouse worked outside the UK,
- Any periods of absence, not exceeding 4 years in total, where the individual or their spouse was working elsewhere in the UK or was required to live elsewhere by their employer to perform their duties effectively.
These periods of absence are cumulative and if more than one of the above could apply they are applied in the most beneficial way.
Our client was absent from the property for a total of 5 years, all aside for the final month due to working elsewhere in the UK. The maximum period of absence for working elsewhere in the UK is 4 years and then the remaining year can apply as an absence for any reason. Meaning the whole 5-year absence would be covered by these rules.
To benefit from these rules there must be a time when the property was the individuals only or main residence both before the period of absence and, unless they are prevented from returning because of the location or terms of their employment, after the period of absence.
Our client did move back into the property after the absence but is selling only a few months after re-occupying. Was the intention at the time they moved back for the property to be their only or main residence or was it a temporary measure? At CG65050 HMRC confirm that the legislation does not specify how long the period of residence must be and that it is the quality of occupation rather than quantity. To ensure that our clients gain will be fully covered by principle private residence relief it is important that they can provide evidence that they intended the property to be there only or main residence when they moved back in.