Selling my home and capital gains tax
QUESTION: I bought my home in Belfast in 2010 and I lived there until 2016 when I took a job in London where I rented a small flat. I rented out my home in Belfast. I was made redundant in 2020. I then travelled for a year and then I moved back into my property this summer. I am now retiring to the countryside and in the process of selling my home in Belfast. Will I have to pay capital gains tax on the sale of my Belfast home?
ANSWER: Principal private residence relief (PPR relief) is available to eliminate or reduce the gain arising when an individual makes a disposal of their only or main residence.
However, two major changes to PPR relief took place fromApril 2020 as follows:
:: Final period of ownership - The first major change is a reduction of the final exemption period from 18 months to nine months. This change is most likely to impact those individuals who no longer live in the old main residence but are unable to or have difficulty in selling the property within the final period of nine months. Those individuals could have an unwelcome chargeable gain.
:: Relief for letting the PPR - Prior to April 2020 letting relief applied where an individual let their only or main residence as residential accommodation for part of their period of ownership. On disposal, the individual was entitled to letting relief, in addition to the PPR relief otherwise available, at the lower of:
• The amount of PPR relief otherwise available
• The chargeable gain arising from the letting and
There was no requirement for the individual to occupy the dwelling while let. However, for disposals on or after April 6 last year, letting relief will only be available for the periods in which the individual has had shared occupancy with their tenants. Therefore letting relief will not apply in your situation as you did not remain in the property as a shared occupant.
There is however another rule we can consider. The tax rules allow for certain periods of absence from a property to be treated as a period of occupation when calculating the amount of principle private residence relief available.
In summary, these are:
• Any periods of absence, for whatever reason, that do not exceed 3 years in total,
• Any periods of absence, no matter how long, during which the individual or their spouse worked outside the UK,
• Any periods of absence, not exceeding four years in total, where the individual or their spouse was working elsewhere in the UK or was required to live elsewhere by their employer to perform their duties effectively.
These periods of absence are cumulative and if more than one of the above could apply they are applied in the most beneficial way.
It appears you were absent from your property for five years due to working elsewhere in the UK for all the years apart from 1 year of travelling abroad. The maximum period of absence for working elsewhere in the UK is four years and then the remaining year can apply as an absence for any reason. This means that the whole five-year absence would be covered by these rules and there should be no capital gains tax to pay on the disposal of the property.
To benefit from these rules there must be a time when the property was the individuals only or main residence both before the period of absence and, unless they are prevented from returning because of the location or terms of their employment, after the period of absence.
As you did move back into the property after the absence and it appears you are selling only a few months after re-occupying. Was the intention at the time you moved back for the property to be your only or main residence or was it a temporary measure? This is an area that HMRC could focus on.
HMRC have confirmed that the legislation does not specify how long the period of residence must be after re-occupying and that it is the quality of occupation rather than quantity. To ensure that your gain will be fully covered by principle private residence relief it is important that they can provide evidence that you intended the property to be your only or main residence when you moved back in.
:: Feargal McCormack (firstname.lastname@example.org) is managing director of PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.