Are you thinking of selling a property? Was it one that you now rent out, but at some stage of your ownership you lived in as your Main Residence?
Then read on.
When you sell a property, one that has been rented out, and one which at some point you lived in as your permanent home, then there are significant tax reliefs available to you as a seller – such as Principal Private Residence Relief (PPR) and Lettings Relief.
You pay Capital Gains Tax on the gain that you make when you sell, subject to these tax reliefs reducing the tax liability.
The main relief is that the period of time that you lived in the property is exempt from tax, and a further additional and highly attractive benefit is that currently the last 18 months of ownership is also classed as deemed occupation even if you were not living there at the time.
How long do you have to live in a Property for it to be classed as your Main Residence?
To qualify for PPR, a property to be your Main Residence, HMRC will expect you to reside there as if it was your permanent home.
Although there are no prescribed timescales, ideally, you will live there for a period of at least 12 months. You will be expected to fully establish yourself into the property by changing your car and home insurances to the new address, changing your Doctors, changing your bank details and maybe even your library card!
Essentially, you have to show that it is your intention to reside there for the foreseeable future.
What if your circumstances change?
Things can change. It may have been your intention to occupy the property but something has happened with your circumstances that means that you might not occupy for as long as you had hoped. Perhaps you needed to unexpectedly sell the property to raise funds, or you are going through a divorce or split from your partner and needed the money.
All maybe is not lost.
In a recent case, which HMRC contested and on challenge went through to the Tribunal, they accepted that a period of just 79 days was sufficient! Although this was an extreme case, and one that HMRC challenged for nearly 4 years, it is important to know that there are no hard and fast rules and each case will be decided
What can you do to help your case?
It is important that with all cases where there is only a short period of occupation that you keep evidence of occupation and show that it was your intention to live there permanently. Do everything that you can to establish residence to prove that it was your intention to live there, so keep those address change details etc as they can prove those intentions to HMRC.
Things are changing though
We should point out that from April 2020, due a change in legislation the period of deemed occupation reduces from 18 months to just 9 months, and the additional Letting Relief, currently a reduction of the lesser of the gain attributable to the letting or £40,000, is withdrawn from most calculations so the timing of any sale of property should be carefully considered.
If you want further advice and guidance on this complex matter, Contact us today to arrange a FREE consultation, we have Chartered Accountants and Tax Advisers in Canary Wharf, Essex and Manchester waiting for your call.