For those who have just one home and have used it as such throughout its period of ownership any gain arising on its sale will be exempt from Capital Gains Tax (CGT).
This exemption also applies to the last 18 months of ownership where, for example, they have moved out of the property and have bought another residence.
It is, however, increasingly common for individuals to have to spend long periods of time away from their home due to work commitments such that on the face of it the property may no longer be seen as their main residence.
But the legislation does allow for certain periods of absence to count towards the occupation of the property in order to help relieve a person’s CGT liability on the sale of their residence.
These periods are referred to as ‘deemed’ periods of occupation of the property.
Firstly, any period of absence from the property up to three years can qualify as a period of deemed occupation.
Also, where a person is required to work elsewhere in the UK, either as an employee or on a self-employed basis, they will be eligible to have a period of absence of not more than four years as counting towards their occupation of the property for the purposes of CGT relief.
Where an employee performs his works duties overseas, this period of deemed occupation is unlimited.
However, in order for CGT relief to be available in the above circumstances the property will have to be the person’s only or main residence at some time before and after the period(s) of absence.
Also, during their period of absence they must have no other property which is regarded as a residence. This may present difficulties as even renting another property whilst working away could be treated as having another residence even if a liability to CGT is unlikely to arise on the cessation of the tenancy agreement.
It is, presently, possible to circumvent this by making an election to nominate the main residence as such, but there is a two-year time limit to do so.
Many individuals may also have to rent out their property as residential accommodation in the period of absence in order to meet their financial obligations.
In this situation, a further relief is available to mitigate any capital gain that may otherwise arise for this period.
This is known as Letting Relief which covers capital gains attributable to the period of letting up to a maximum of £40,000 or £80,000 for a married couple or civil partner owning a residence jointly.
The relief does not extend to the rental income received from the letting of the property which is taxable subject to allowable property deductions, such as repairs, mortgage interest, utility costs etc.
