Main residence relief

Current rules

The tax relief that is available on any gains made by homeowners when they sell their main home has come under the spotlight recently, with speculation that HMRC may be looking to reform these rules for properties worth over £1.5m.

Currently, if an individual sells their home and they lived in it throughout their ownership period, they may be entitled to 100% main residence relief against any chargeable gain made on the property. Periods when they did not occupy the property as their main residence can be exposed to Capital Gains Tax.

For example, suppose an individual owns a property for 10 years and makes a gain of £100,000 on sale. If they lived in the property for the first 2 years, then lived elsewhere for the next 3 years and then returned to the property for the next 5 years, 7 of the 10 years would be covered by main residence relief to reflect the period of occupation. This means £70,000 of the chargeable gain is covered by main residence relief, which leaves £30,000 subject to Capital Gains Tax.

It is important to note that an individual can only have one main residence at any one time for the purposes of the relief. In addition, married couples can only have one main residence between them at any point in time.

Periods of deemed occupation

What can be overlooked is that main residence relief can be extended for periods the property was unoccupied, providing this time falls within the category of a period of deemed occupation.

Periods of deemed occupation include:

• 36 months for any reason.
• Periods of time the individual is employed abroad and the work is performed outside the UK.
• Periods of up to four years, if the individual is absent from the property as they are required to work elsewhere in the UK.

For these time periods to count as a period of deemed occupation, the individual must occupy the property as their main home before and after one of the above periods of deemed occupation. In addition, no other property can qualify as a main residence in this corresponding period.

Finally, the last 9 months of ownership is treated as a period of deemed occupation. Unlike the other deemed occupation periods, the only requirement for this period to qualify is that the property was the individual’s main residence at some point during their ownership period.

The above is just a summary of how the relief works. If you have any further questions regarding this article, please contact Joe Wilson on 023 8046 1237 or email Joe Wilson.