Main residence

hermante

We own a flat. In May 2019 we bought a house and began renovation work. We intended to finish renovation and move in March 2020, then sell the flat.

Due to COVID we moved in June 2020 and only finished the renovation in September. Due to lack of EWS1, we won't be able to sell the flat until early 2021. Unless the market for flats unexpectedly picks up, we will probably barely break even or make a loss on the flat after solicitor fees etc.

Both properties were our main residence, but there is an overlap period from May 2019 until early 2021. Given the above dates and circumstances, is it beneficial to nominate a main residence for CGT purposes and if so which one for what period?

If yes, how would we do this as there doesn't seem to be a specified form to return.

oldbikebloke

depends which property will have the biggest gain, as you realise only one of them can be given PRR
don't forget you stil get the final 9 months of ownership as deemed PRR even though no longer living in the flat, so if you moved out of the flat by end May 20 (moved to house in June 20) you will get 100% relief on the flat until end Feb 21 anyway if you leave things based on the facts of when you lived where.

to nominate you must do so within 2 years of buying the extra property. That deadline is strictly enforced, so you have exact May 19 actual purchase date + 2 years, so somewhere in late April or during May 2021 to do the nomination by 

you write a letter and both sign it since you refer to "we" and I assume therefore are co-owners
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64520

Jeremy535897

A lot of your questions are answered here:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2020
Note the ability to claim for periods before occupation as a main residence when renovating, the time limit for making a nomination (2 years from whatever day in May 2019 in your case), and the 9 (not 18) months exemption after moving out (HS283 is out of date on lettings relief as well, but not relevant to you). See https://www.gov.uk/tax-sell-home/nominating-a-home

If you will make no taxable gain on your flat, nominate your new house from the date you acquired it. If you owned it jointly and have no other gains, you have annual exemptions of £12,300 each to set against the gain if it turns out there is one. You should have a better idea before the deadline in May 2021.

oldbikebloke

Jeremy535897 said:

Note the ability to claim for periods before occupation as a main residence when renovating,

sadly for OP HMRC don't produce the helpsheet for the tax year we are in, only for the tax year just ended
 therefore HS283 for 2020 (ie 19/20 tax year) does not reflect the change to the delay in moving in rule, it is now 24 months absolute, not 12 
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65000

as the renovation work prevented moving in, and crucially that work was completed before 24 months and you moved in before 24 months, you get PRR from date of purchase on the new property and retain it on the old one as well
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65013

Jeremy535897

oldbikebloke said:

Jeremy535897 said:

Note the ability to claim for periods before occupation as a main residence when renovating,

sadly for OP HMRC don't produce the helpsheet for the tax year we are in, only for the tax year just ended
 therefore HS283 for 2020 (ie 19/20 tax year) does not reflect the change to the delay in moving in rule, it is now 24 months absolute, not 12 
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65000

Yes, it is a real pain, particularly as there have been so many changes since 5 April 2020 (and I didn't spot that one).

oldbikebloke

Jeremy535897 said:

Yes, it is a real pain, particularly as there have been so many changes since 5 April 2020 (and I didn't spot that one).

would appreciate if you could confirm the implication is still as I think, PRR on both properties ?
not sure when that would end for the "old" one though?

Jeremy535897

My gut reaction would be to nominate the new property from date of acquisition, but on looking at this further, apparently you don't actually have to, so long as you meet the conditions you set out in your link to manual 65000. See:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65013

jimmo

In the circumstances described by the OP it appears that there was never a time when they occupied both properties simultaneously and there is therefore no scope to make a valid election. See HMRC's interpretation of S222(5).

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64485

 

It seems that they moved out of the flat and into the house in June 20 so that the flat was their only residence until June 20 and the house has been their only residence since June 20.

 

However, just in case, if they did occupy both properties simultaneously from June 20 that would be the date that they first had 2 residences and the start date for the 2 year limit in which a valid nomination could be made.

 

For the flat relief is available for the period of occupation and the final 9 months of ownership.

For the house relief is available from May 2019 to June 2020 under the 2 year rule already discussed and from June 20 as the only residence.

 

As the OP is anticipating perhaps realising a loss it may also be worthwhile to point out that main residence relief would also apply to restrict the allowable losses to be carried forward.

  https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65080

Jeremy535897

It would be unusual to have two properties available to occupy for so long, even while renovating one, and never occupy them both simultaneously (it may be that the renovation property was unable to be occupied at the start, but what is the evidence). But the example from my earlier link seems to address the point:

Private residence relief: relief for two dwelling houses for same period

The effect of TCGA92/S223ZA (or ESC D49 where the disposal was prior to 6 April 2020) is to extend the period of residence in respect of a newly acquired dwelling house. If this means that an individual is treated as having two residences for a period, a nomination under TCGA92/S222 (5), see CG64485+, between them, is not required. Relief will be available for both residences for that period.

Example

An individual puts his current residence up for sale in December 2019. He buys a dwelling house as his new residence in May 2020 but does not move in straight away. He remains in his old residence until it is sold in November  2020 and then moves to the new dwelling house. The gain arising from the old residence, which has always been used as his only or main residence, is wholly relieved. Relief is due on the new residence from May 2020 under TCGA92/S223ZA, see CG65003. So relief is available on two residences at the same time for the period between May 2020 and November 2020.

hermante

Jeremy535897 said:

My gut reaction would be to nominate the new property from date of acquisition, but on looking at this further, apparently you don't actually have to, so long as you meet the conditions you set out in your link to manual 65000.

Thanks.
Where can I find the actual text for TCGA92/S223ZA? It doesn't seem to be on legislation.gov.uk

So in practical terms, it looks like I don't need to do anything, but if we don't manage to sell the flat before March 2021, we would be liable to CGT for the period after June 2020 until 9 months before sale? (Which is definitely not going to be more than a 24.6K gain, and since we won't have any other gains for many years claiming a loss doesn't really affect anything.)

I wonder what evidence might be needed to prove the move-in date if HMRC questions it. We have only an invoice from a builder in Dec 2019 as the rest of the work was done by ourselves after that (and technically is not complete and won't be for 2-3 years as we are working on it slowly now).

Furthermore we already changed our addresses with most organisations immediately after completion of the purchase in May 2019, and there isn't really any proof of where we spent most time or whatever after that. So not sure if it may be more useful to send HMRC a nomination just for the avoidance of doubt?

After all the main aim is to not be liable for any CGT on the more expensive house, while whatever we say about the flat isn't going to make any difference to the amount of tax owed.

Jeremy535897

It is in Finance Act 2020:
https://www.legislation.gov.uk/ukpga/2020/14/section/24/enacted/data.xht?view=snippet&wrap=true

In your circumstances, I think it means that the house is treated as your main residence for the shortest of:

• the first 24 months of ownership, provided it is actually your only or main residence by then
• the time you finish renovations and move into it as your only or main residence
• the date you sell the flat and it becomes your only residence

The flat was your main residence until you moved into the house as your main residence, and will be treated as your main residence for the last 9 months of ownership.

If you live in both as a residence for any overlap period, on the basis that you believe you will pay no CGT on the sale of the flat, or make a useful loss for CGT, nominate the house as your main residence, because I suppose this legislation might not work properly if at the point you completed the renovations, the house became your secondary but not main residence (or if it is still a secondary residence in May 2021), but this is new and difficult legislation, and I welcome jimmo's or OBB's or other posters' views.