We are a married couple who bought a house together in London in September 2009 for £650,000. We lived in it as our main home until September 2013. My job as a doctor meant we had to move out in September 2013, so we rented a house in Haslemere (September 2013 to December 2015). But whilst there we nominated our London property as our principal private residence (PPR) (within two years of moving). From September 2013 until now, our house in London has been rented out. In December 2015 we bought the house we were renting and my job continues in Portsmouth and is now permanent. Currently the London house is worth approximately £1,150,000. We assume we can use work-related absence relief for at least two years (September 2013 to December 2015), but can we continue to use it even when we bought the house we had been renting (up to four years)? Also, we assume we don’t need to move back into London to allow this. Do we have to re-nominate our Haslemere house as our PPR when four years is up? At what stage will we have to pay capital gains tax (CGT) if the price remains static for the next few years (assuming letting relief, 18 months of exemption and CGT annual allowance)?
Arthur Weller replies:
Firstly, the election you made that the London house should be your main residence, for tax purposes, has continuing effect until the earlier of: (a) the date on which your combination of residences changes; or (b) the date from which a variation of notices takes effect (see HMRC’s Capital Gains manual at www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64497). Therefore, your original election continued until you bought the house in Haslemere in December 2015. From that point onwards, it is a matter of fact that Haslemere has been your main residence. From September 2013 until December 2015, the London house was deemed occupied because the requirements of your work meant that you had to live elsewhere. However, there is a condition that in order to be eligible for this ‘deemed occupation’ you make the London house your main residence again sometime in the future. Fortunately, this condition is waived if the terms of your employment prohibit you from reoccupying the property (TCGA 1992, s 223(3B)(b)). So, the conclusion is that from September 2009 until September 2013 you occupied the London house, and from September 2013 to December 2015 you are deemed to have occupied it. From December 2015 onwards, you are eligible for lettings relief. Because the house is jointly owned both you and your husband are each eligible to the £40,000 allowance. So, if you would sell the house in September 2018, making a capital gain of £250,000 each, this would mean a capital gain of approximately £27,777 per year (assuming owned for nine years). PPR relief would be available for the first four years (September 2009 – September 2013) plus the next 2.25 years (September 2013 – December 2015) plus the last 18 months (March 2017 – September 2018) = a total of 7.75 years equating to approximately £215,270 relief. Add to this the letting exemption of £40,000 means that you would have no CGT to pay. But obviously, as time moves on these calculations change.
This question was first printed in Property Tax Insider in January 2019.