Capital Gains and Primary Residences

DJ81

[FONT=&quot]A question on Capital Gains for a Primary Residence when I've never strictly permanently lived in the property in question...don't be too hasty to judge, (I hope) there are a few mitigating factors![/FONT]

[FONT=&quot]My mother sold the family home back in 2008, gifted me a sum of money and with that (and other private savings) I bought a flat in my name in mid-2010, taking out a residential mortgage. The initial plan was for us to live together but life changed and given she was suffering from ill health and approaching 70 (hence the reason I took out the mortgage) the reality is that she went on to live in the flat rent free until she passed away in 2015. At all times my mother was the only person permanently living in the flat and as such she was the only person listed on the Council Tax for that period. However, the Ground Rent and Maintenance Charges payable on the property were in my name and of course, I continued to maintain the residential mortgage until I recently sold the flat (Nov-2017). In Nov-2013 I bought a house with my wife, before then I had rented various properties with her. At point of purchase of this house, I believe it became my Primary Residence, (whereas previous to this, it was the flat my mother was living in).[/FONT]

[FONT=&quot]So my question is, given the flat I bought was not a buy-to-let, I received no income from it and when I purchased it, it was the only property I owned, can I reasonably claim that at the time of purchase (Apr-2010) up until the day I bought my house with my wife (Nov-2013), that this flat was my primary residence and I can use that period to calculate a relief on my capital gains relating to its sale? This is despite the fact that (although it was my original intention) I never lived in the flat with my mother for longer than a week at a time as I almost immediately moved into rented accommodation with my girlfriend (then wife) instead. [/FONT]

[FONT=&quot]My interpretation of the situation is that, by definition, given it was a residential mortgage, was not intended as an investment property and it was the only property I owned between Apr-2010 and Nov-2013, it has to be classed as my primary residence. I'm hoping there are some parallels with, e.g. a husband that buys a property with his wife and then immediately moves out (for some sad reason) and rents a flat for a period of time whilst they attempt to sell the family home. At point of sale of that family home, surely the fact he has not been living in the house does not change the fact that it is his primary residence (also akin to when a couple separately own two properties and have to elect which one is their primary residence as soon as they get married and move in together). [/FONT]

[FONT=&quot]Thanks in advance for any advice or further reading you can point me in the direction of. I’m aware that when it comes to filling in my tax return for this year I will undoubtedly require professional advice, but any comments ahead of that meeting will no doubt be very useful.[/FONT]

Tom99

[FONT=Verdana, sans-serif]No you can't. To claim the relief:

[/FONT] “[FONT=Verdana, sans-serif]you have one home and you’ve lived in it as your main home for all the time you’ve owned it”

[/FONT] [FONT=Verdana, sans-serif]Which you obviously have not done. [/FONT]

Pixie5740

DJ81 wrote: »

[FONT=&quot]A question on Capital Gains for a Primary Residence when I've never strictly permanently lived in the property in question...don't be too hasty to judge, (I hope) there are a few mitigating factors![/FONT]

[FONT=&quot]My mother sold the family home back in 2008, gifted me a sum of money and with that (and other private savings) I bought a flat in my name in mid-2010, taking out a residential mortgage. The initial plan was for us to live together but life changed and given she was suffering from ill health and approaching 70 (hence the reason I took out the mortgage) the reality is that she went on to live in the flat rent free until she passed away in 2015. At all times my mother was the only person permanently living in the flat and as such she was the only person listed on the Council Tax for that period. However, the Ground Rent and Maintenance Charges payable on the property were in my name and of course, I continued to maintain the residential mortgage until I recently sold the flat (Nov-2017). In Nov-2013 I bought a house with my wife, before then I had rented various properties with her. At point of purchase of this house, I believe it became my Primary Residence, (whereas previous to this, it was the flat my mother was living in).[/FONT]

[FONT=&quot]So my question is, given the flat I bought was not a buy-to-let, I received no income from it and when I purchased it, it was the only property I owned, can I reasonably claim that at the time of purchase (Apr-2010) up until the day I bought my house with my wife (Nov-2013), that this flat was my primary residence and I can use that period to calculate a relief on my capital gains relating to its sale? This is despite the fact that (although it was my original intention) I never lived in the flat with my mother for longer than a week at a time as I almost immediately moved into rented accommodation with my girlfriend (then wife) instead. [/FONT]

[FONT=&quot]My interpretation of the situation is that, by definition, given it was a residential mortgage, was not intended as an investment property and it was the only property I owned between Apr-2010 and Nov-2013, it has to be classed as my primary residence. I'm hoping there are some parallels with, e.g. a husband that buys a property with his wife and then immediately moves out (for some sad reason) and rents a flat for a period of time whilst they attempt to sell the family home. At point of sale of that family home, surely the fact he has not been living in the house does not change the fact that it is his primary residence (also akin to when a couple separately own two properties and have to elect which one is their primary residence as soon as they get married and move in together). [/FONT]

[FONT=&quot]Thanks in advance for any advice or further reading you can point me in the direction of. I’m aware that when it comes to filling in my tax return for this year I will undoubtedly require professional advice, but any comments ahead of that meeting will no doubt be very useful.[/FONT]

The fact you used a residential mortgage to purchase a property you didn't live in is irrelevant. Just as the fact the bills for the ground rent were in your name is irrelevant. The property was never your residence never mind your main residence.

AdrianC

DJ81 wrote: »

[FONT=&quot]So my question is... can I reasonably claim that at the time of purchase (Apr-2010) up until the day I bought my house with my wife (Nov-2013), that this flat was my primary residence...?
This is despite the fact that ... I never lived in the flat

[/FONT]
[FONT=&quot]Just pause, read that back to yourself, and ask yourself whether you seriously think that a place you freely agree you never resided in could possibly be your primary residence...[/FONT]
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[FONT=&quot]

My interpretation of the situation is that, by definition, given it was a residential mortgage, was not intended as an investment property and it was the only property I owned between Apr-2010 and Nov-2013, it has to be classed as my primary residence.

[/FONT]
[FONT=&quot]Despite the fact you never resided there.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]

I'm hoping there are some parallels with, e.g. a husband that buys a property with his wife and then immediately moves out (for some sad reason) and rents a flat for a period of time whilst they attempt to sell the family home. At point of sale of that family home, surely the fact he has not been living in the house does not change the fact that it is his primary residence

[/FONT]
[FONT=&quot]Of course it isn't his primary residence if he doesn't reside there.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]

(also akin to when a couple separately own two properties and have to elect which one is their primary residence as soon as they get married and move in together).

[/FONT]
[FONT=&quot]They elect which is their primary residence if they reside in both - they spend exactly half their time in one, and half in the other.[/FONT]
[FONT=&quot]If they spend more time in one than the other, then it would be inappropriate to elect the other.[/FONT]
[FONT=&quot]If they only reside in one, then no election is needed.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]Clearly the coincidence between the words "reside" and "residence" is escaping you.[/FONT]

00ec25

DJ81 wrote: »

[FONT=&quot]My mother sold the family home back in 2008, gifted me a sum of money and with that (and other private savings) I bought a flat in my name in mid-2010, taking out a residential mortgage. The initial plan was for us to live together but life changed and given she was suffering from ill health and approaching 70 (hence the reason I took out the mortgage) the reality is that she went on to live in the flat rent free until she passed away in 2015. At all times my mother was the only person permanently living in the flat and as such she was the only person listed on the Council Tax for that period. mother was the only person in occupation but was not its owner

However, the Ground Rent and Maintenance Charges payable on the property were in my name and of course, I continued to maintain the residential mortgage all irrelevant fact until I recently sold the flat (Nov-2017). so the property was owned by you for around 7 years

In Nov-2013 I bought a house with my wife, a married couple are deemed to have only 1 main residence between them - the one they live in. before then I had rented various properties with her. so your main residence was a rental property (ownership is not a requirement of residence) At point of purchase of this house, I believe it became my Primary Residence, (whereas previous to this, it was the flat my mother was living in). no it was never your main residence[/FONT]

[FONT=&quot]So my question is, given the flat I bought was not a buy-to-let irrelevant, I received no income from it irrelevant and when I purchased it, it was the only property I owned, correct, but irrelevant can I reasonably claim that at the time of purchase (Apr-2010) up until the day I bought my house with my wife (Nov-2013), that this flat was my primary residence no and I can use that period to calculate a relief on my capital gains relating to its sale? very unlikely This is despite the fact that (although it was my original intention) I never lived in the flat with my mother for longer than a week at a time as I almost immediately moved into rented accommodation with my girlfriend (then wife) instead. [/FONT]

[FONT=&quot]My interpretation of the situation is that, by definition, given it was a residential mortgage, how you funded the purchase is utterly irrelevant was not intended as an investment property irrelevant, CGT is a tax on gains, not "intentions" and it was the only property I owned between Apr-2010 and Nov-2013, the number owned is not a deciding factor it has to be classed as my primary residence. no it does not I'm hoping there are some parallels with, e.g. a husband that buys a property with his wife and then immediately moves out (for some sad reason) and rents a flat for a period of time whilst they attempt to sell the family home. At point of sale of that family home, surely the fact he has not been living in the house does not change the fact that it is his primary residence (also akin to when a couple separately own two properties and have to elect which one is their primary residence as soon as they get married and move in together). a married couple are deemed to have only 1 main residence between them - the one they live in. You are correct a election can be made, but not of a property which is occupied by someone else. In the scenario you are trying to depict the husband would still have a claim to PRR unless the separation was in circumstances where, from the outset, it was likely to be permanent. On that basis does not matter if still married, the rental is his home and the ex has her own separate home because the connection between the 2 of them has permanently broken even before the divorce [/FONT]

in order to be a main residence you must have occupied the property in reality. That is an overriding requirement

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64465

in your entire 7 years of ownership there is potentially a 1 week period where you claim to have so occupied it. What evidence do you have to support that claim?

bear in mind there is extensive case law over occupation and CGT. The overriding principle being degree of permanence, continuity or expectation of continuity. You fail all three: 1 week, no intention to continue and a clear expectation of moving in with the GF

https://www.taxinsider.co.uk/1222-Private_Residence_Relief_Is_It_A_Residence.html

if you try and claim PRR and HMRC investigates your tax return you'll be hung out to dry

DJ81

Thanks all for very quick replies. My follow up is then, how would HMRC categorise this - as an investment property? Potentially their analysis is never that granular and its simply a binary choice between 'primary residence or not', but in reality here it turned out that my mother became to all intents and purposes a dependent soon after I bought the flat, hence circumstance dictated that she live there rent-free until she passed away. Is there nothing in that element of the situation that changes the purpose of the ownership of the flat? The intention when I purchased the flat was never for investment purposes...so ok, it wasn't my primary residence, but it wasn't an investment, there's no middle ground as far as the CGT is concerned?

Pixie5740

DJ81 wrote: »

Thanks all for very quick replies. My follow up is then, how would HMRC categorise this - as an investment property? Potentially their analysis is never that granular and its simply a binary choice between 'primary residence or not', but in reality here it turned out that my mother became to all intents and purposes a dependent soon after I bought the flat, hence circumstance dictated that she live there rent-free until she passed away. Is there nothing in that element of the situation that changes the purpose of the ownership of the flat? The intention when I purchased the flat was never for investment purposes...so ok, it wasn't my primary residence, but it wasn't an investment, there's no middle ground as far as the CGT is concerned?

Capital Gains Tax is a tax on gain it has nothing to do with why you bought the property or what you used it for. If it had been your main residence you would have been entitled to Private Residence Relief but it was never your main residence so you are not entitled to that relief.

Pixie5740

How much value had the property gained since you purchased it?

Tom99

DJ81 wrote: »

Thanks all for very quick replies. My follow up is then, how would HMRC categorise this - as an investment property? Potentially their analysis is never that granular and its simply a binary choice between 'primary residence or not', but in reality here it turned out that my mother became to all intents and purposes a dependent soon after I bought the flat, hence circumstance dictated that she live there rent-free until she passed away. Is there nothing in that element of the situation that changes the purpose of the ownership of the flat? The intention when I purchased the flat was never for investment purposes...so ok, it wasn't my primary residence, but it wasn't an investment, there's no middle ground as far as the CGT is concerned?

[FONT=Verdana, sans-serif]HMRC will categorise it as a residential property which you will have disposed of at a gain and on which you will pay CGT at 18% or 28% .[/FONT]
[FONT=Verdana, sans-serif]Whether you regard it as an investment or just to help your Mum is irrelevant as far as HMRC are concerned.[/FONT]

AdrianC

DJ81 wrote: »

My follow up is then, how would HMRC categorise this - as an investment property? Potentially their analysis is never that granular and its simply a binary choice between 'primary residence or not'

There is no income tax to pay on any earnings from it.
It is not eligible for PPR relief from CGT.

there's no middle ground as far as the CGT is concerned?

Nope. You pay CGT, unless you get relief since it was your PPR. Which, in this case, it wasn't.


Let's pause and remember what you're being asked to pay here... A minority of the gain in value the flat has made in your ownership. And all while it was providing your elderly mother with free accommodation! Win-win, right?

00ec25

DJ81 wrote: »

Thanks all for very quick replies. My follow up is then, how would HMRC categorise this - as an investment property? Potentially their analysis is never that granular and its simply a binary choice between 'primary residence or not', but in reality here it turned out that my mother became to all intents and purposes a dependent soon after I bought the flat, hence circumstance dictated that she live there rent-free until she passed away. Is there nothing in that element of the situation that changes the purpose of the ownership of the flat? The intention when I purchased the flat was never for investment purposes...so ok, it wasn't my primary residence, but it wasn't an investment, there's no middle ground as far as the CGT is concerned?

there are 2 possibilities:

a) dependent relative relief. Impossible That rule ended wef 6 April 1988

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65671

b) that you were never the beneficial owner of the property, it was bought solely for the benefit of your mother and held by you in trust for her. very difficult without proper legal documentation You sold it and you took the money, your mother (or her estate) didn't get a brass farthing from it, that is the fact of the case

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg11730

as you keep obsessing over "investments" let's be granular - YOU GOT THE MONEY, it was your beneficial ownership investment. HMRC is binary, you own 2 properties, only 1 can be your main residence at any one time. The other is simply liable to CGT irrespective of whether it is an "investment", a holiday home, the wife's parents old house held for sentiment, or any other possible reason you can think of for owning a property that is not your main residence