Is this a second home? Liable to capital gains tax?

[kaben]

Hello,
help for a friend if anyone knows how this situation works?

Friend got a job 20 years ago and the job had onsite accomodation, which for context was “free” in exchange for extra hours of work (over the initial 35 hours per week) and being available for emergencies.

She worried that she wouldn’t ever get on the property ladder, so bought a terraced house with a mortgage and rented it out, whilst living at work accomodation. After about 10 years, her work sold the building she lived in and so she had to move out. She decided to rent a 1 bed flat very near work as living in her owned house would have involved a commute and she was settled in the work area. She has lived in this rented flat for another 10 years, whilst tenants have lived in her owned house for the entire 20 years she’s owned it (not the same tenants, they’ve changed a few times).

She has been served notice by her landlord so can no longer live in the flat. She is therefore thinking giving notice to her tenants and selling her house so she can buy a property close to her work.

since she has only owned the one property, will it attract capital gains tax upon sale? Because she has never lived in it - living either at work or in her rented flat.

further context if relevant: friend is single, no kids, and earns £40k.

thanks for any help

I don’t think so. It’s on second properties as far as I know.

Yes it would as it has never been her principle residence. If she moved into it, that time might offset some of the gain.

www.gov.uk/tax-sell-home/let-out-part-of-home

She could seek advice from a tax accountant as there are certain reliefs available where it is her only property too.

Much depends on whether she has ever lived in it, if she has then it will count as her home, but if not then its a buy to let and does attract CGT. Plenty of info on the government website above.

I stand corrected. Is it possible the OPs friend could claim up to 4 years as she was provided accommodation by an employer, I read something about that.

As I understand it, she is likely to be best off moving back into the property for a period, and she may then be entitled to at least some private principal residence relief. She needs proper advice though about how long she would likely need to do this for to qualify. Could she work remotely from there for some of the week?

i think the commute would be alright temporarily for someone who could drive it, but she has no car and the bus/train combo would be a very time consuming convoluted route.

it’s a shame as she didn’t realise that this is how things would go with the tax situation.

thanks for the help

Only if she lived in it before she had to move away for work reasons. As per HMRC website.

"In general, the rules require that you lived in the property as your only or main home at some time both before and after the period of absence."

Yes because it has been rented out

I assume she has also been declaring and paying tax on the rental income

She had to move for work so CGT will be minimal get a creative accountant

Yes, she isn’t a criminal.

Qualified accounts aren't creative. We apply the law otherwise we risk disciplinary action. Never engage someone who claims they are creative as they probably aren't a member of a professional body.

(Not sure where that quote came from!)

But friend had moved before purchasing the property. This was clearly an investment, never intended to be their home.

Depending on the value of the property it may not be that much tax! Remember she can offset any costs (purchase and sale costs for example) and also any improvements done to the property (eg painting between tenants). For example assuming it's worth 150k and she bought for 100k and had around 15k of allowable costs, it would be around 7k of tax to pay.
If she doesn't want to pay then living there is definitely the way forward, could she pay taxis ? If the cost of the taxis was less than the taxable gain then that may be worth it ?

I don't think it was as clear cut - she bought the house in a familiar area, but the job was in an area that was new to her, just because that was the one she managed to get (ie not some masterplan to be a property tycoon). She didn't really know/plan for how long she would stay in the job and got a mortgage which was flexible so she could live in the house or rent it out. It's ended up that she's stayed in the job a very long time and the house has been rented out a long time as a consequence, but this was not necessarily going to be the case. I don't suppose the tax man would see it this way. It was a way onto the property ladder, rather than investing money (most of it was mortgage anyway).

There are special rules for property owners who have to 'live in' for work away from their property. They're tucked away in the HMRC rules and accountants don't generally know about them as it's a niche area. It happened to someone we knew who was a clergy member but also applied to school caretakers, wardens of sheltered schemes etc. I think there is exemption from capital gains as long as the intention was to return to the property if the live in job finished. It doesn't ask you to prove this though.

@Turmerictolly yes exactly
good luck to your friend @kaben hardly tax evasion

www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64555

That's really interesting about having to live in work, as that would be provable for those 10 years. And the fact that the property was bought in a familiar area where previous address could also be proven would potentially evidence an intention to return.

Yes, it's definitely not tax evasion, just how things turned out really - and what's made it a current issue is the fact that the landlord of her rented flat has given notice.

The person we knew submitted a tax return on the sale of the property (which he never did end up living in) and didn't have to pay much at all if I remember rightly.

But she never lived in it before she moved away for work so the "working away" exemption doesn't apply. What matters are the facts, not how a tax inspector would see it.

If you look at the example of the farm worker in the HMRC page. You don't need to have bought or lived in it before as long as you were in the live in job at the time you bought it. You don't need to have lived in it at all.

She could just ring HMRC and ask them