I want to sell a property I bought 19 years ago, having lived there eight years before I bought it and four years after. I have let it for approximately nine out of the 19 years I have owned it. I would like to know if I can nominate it as my main residence and how private residence relief is calculated. Can I claim my contribution towards improvement works as an expense?
Arthur Weller replies:
If you lived in the property as your main residence for four years after you bought the property, you do not now need to nominate the property as your main residence; it was automatically designated your main residence for those years, as per HMRC’s Capital Gains manual at CG64545. Unfortunately, the eight years you occupied the property before you bought it will not count; see CG64930. Any enhancement expenditure you put into improving the property (if still in existence) that you did not at the time offset against your rental income, can be offset against the capital gain. You take the capital gain (call it £X), deduct your enhancement expenditure, resulting in £Y, then divide £Y by 19 to find the gain per year (call it £Z). You are entitled to four years’ relief for when you lived there, plus the last nine months’ of ownership (assuming the four years and last nine months do not overlap). Then you deduct 4.75 * £Z relief from £Y to find your final taxable gain.