Capital gains tax & private residence relief

kcat80

I would be very grateful if anyone can offer advice about my situation regarding private residence relief that I would be entitled to on selling my house....

I have owned my house for 15 years and consider this to have been my main residence since I bought it. I occupied this property continuously for 9 years until I moved into my mother's house to provide full time care day and night in her home, which I have done, until she died on September 2012. In order to do this I had to resign from my full time job.

I now own a 3rd of what was my mother’s home but I will be moving out to return to my main home. I let my main home for the 6 years that I was caring for my mother and will move back in June 2013 once the current tenancy expires.

Later this year I will probably need to downsize and so the problem of whether I need to pay CGT will arise. There are 2 reasons that I think that I am exempt from CGT which are as follows:

• I have noted from looking at HMRC manual guidelines that a live-in job of 4 years duration is exempt and that the last 3 years of ownership counts as if the main residence is occupied whether it is or not, so I have formed the impression that no CGT would be due in the event of my property being sold

• I also understood from HMRC that 3 years absence “for any reason” can be followed by the “last 3 year of ownership allowance” if the property is reoccupied by the owner and that reoccupation doesn’t necessarily need to be straight after the 3 years absence “for any reason”

Are both these reasons for exemption valid? Can anyone give me reassurance that I have understood the rules correctly? If so, it would be an enormous weight lifted off my shoulders…
Many thanks in advance

CLAPTON

how much was the house bought for
and how much is it worth now

John424

I passed my final accountancy tax exams well over 10 years ago so my memory is hazy and someone will come on with more precise answers than me but I think you're fine, I recall doing these types of computations involving letting reliefs etc and scenarios worse than yours escaped tax!!

holly_hobby

Any gain is offset by the following....

Full PRR relief for the time if was your primary residence
PLUS
You exclude the last 36 mths of ownership (whether occupied by you or not)
To which you may apply to any residual gain (as property was let) ...
Lettings relief (max 40k)
Plus application of (if there is still CGT exposure)
Of your annual capital gains tax relief of £10,600

So unless you have a substantial and pretty hefty gain remaining on the remaining exposed 3 yrs (ie 15 yrs - 9yrs PPR - last 36 mths of ownership), you'll have no cgt exposure ...

By the way IMHO caring for Mum will not be classed by HMRC, for cgt purposes, as forced absence through employment - but given the offsetting permitted as noted above, I doubt this would have much impact anyway.

Hope this helps

Holly

jimmo

Strictly speaking your interpretation is a little inaccurate but how important that is, is not too clear.

To start with the easy bit, as long as you have lived in the house at some time during your period of ownership the final 3 years of ownership will be exempt.

What may be important here that the final 3 years does not necessarily count as a period of occupation.

At this point therefore you have a period of ownership of 15 years and periods of exemption of 9 years of occupation plus the final 3 years of ownership.

Therefore, before even considering periods of absence you have 12 years exempt and 3 years chargeable.

It seems to me that that can be covered by “
Any periods of absence for whatever reason which do not exceed 3 years in total.”

The normal rule is that a period of absence requires that you occupy your house before and after your period of absence. Your current intention is to move back into your own house and, as long as you do so your total capital gain will be exempt so there is no need to look any further.

All this need refining to accurately reflect actual periods of ownership and periods of absence but if any part of your capital gain is not exempt it would probably be easier to cover that by lettings relief and your annual exempt amount than risk getting involved in any controversy about whether acting as a carer for your mother was work or even an employment.

For what it is worth, I would support you in arguing that your mother’s house was a place of work but if you don’t need to go there, why do so?

Finally, I see that you now own a 1/3 share of your mother’s house. Assuming that this was an inheritance you acquired a financial interest in that house on the day your mother died, the period from the date of her death until you move out is a period of occupation of a property in which you have a financial interest. That means that it cannot be a period of absence from your own house.

That really shouldn’t be too important as long as you move back in to your house before moving on but it will provide you with relief if you sell your mother’s house at a profit.

John_Pierpoint

In case you have not already realised, jimmo used to do this for a living before he retired.

Assuming you acquired your 33% of mum's house together with its other beneficial owner(s) at its probate valuation, what do you (plural) propose to do with that house?
Might you (singular) find yourself explaining the disposal of two houses on the same CGT self assessment form?

John424

Jimmo,

Is it not the case that when you calculated the gain that the letting exemptions were so high anyway that very few people get 'caught'? I remember a choice of letting exemptions being available and you chose the higher amount, one of which was about £40k, meaning very few got 'caught'. Not known for being called 'capital avoidance' tax for nothing!

00ec25

John424 wrote: »

Jimmo,

Is it not the case that when you calculated the gain that the letting exemptions were so high anyway that very few people get 'caught'? I remember a choice of letting exemptions being available and you chose the higher amount, one of which was about £40k, meaning very few got 'caught'. Not known for being called 'capital avoidance' tax for nothing!

as you say your memory is hazy you need to refresh it if you want to post on CGT matters
lettings relief is lower of not higher of
a) PRR
b) gain in let period
c) £40k cap

getmore4less

Remember that if you move back in the 36 months starts to overlap with the next period of occupancy.

holly_hobby

To stop any squabbling and relying on poss outdated knowledge .... so easy to just refer to HMRC ref notes, which I've dug out and pasted for the guidance of the OP and others (if reqd).

http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

It naturally also discusses the application and restriction re lettings relief, as also covered in my and subsequent posts.

Hope this helps

Holly

kcat80

Thank you very much for this prompt reply - I really appreciate your help. To clarify the more exact details that I think are relevant:

June 98 – bought the house

June 98 – Sept 2007 – lived in the house as my main residence

Sept 07 – June 2013 – lived at my mother’s house & rented out the house (from Nov 07 – June 13)

I may sell the house in Sept 13 & would then have lived there for 3 months

I have estimated that the gain could be £650,000

As far as my mother’s house is concerned the earlier details I gave weren’t quite correct. It was actually gifted to my brother in Nov 1997 and “title absolute” passed to him at this point. A covenant was also put in place at that time which entitled me to a 3rd of the property if it was sold. My brother will now occupy the house but I am still entitled to request the sale of it.

If I claim the last 3 years as exempt (ie Sept 10 – Sept 13), then from your reply I think I can claim relief for the period from Nov 07 – Sept 10 as “absence for any reason” – is this correct? If so, then I understand that I would be fully exempt and would not have to notify HMRC in the CGT section of my self-assessment form (as I would not be claiming lettings relief).

Many thanks again