Capital gains tax and tied work accommodation - anyone an expert?

[PippaWilliamm]

I’ve been trying to work this out and can’t! I’ll pay for an accountant but wondered if anyone else has been through this and can help.
My DH works in a boarding school where he is required to live in a flat at the school. We have lived there as a family for 9 years. 5 years ago we decided to buy a house locally in case anything happened with his job, and for us to live in when the time came to change jobs. We have rented it out the whole time. Our intention was always to live there but now that he really is leaving the job, we think it would be sensible to downsize to a smaller house as the cost of living and lack of expected pay rises means that it would be a real stretch in the bigger house with a bigger mortgage.

According to this HMRC page

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

as our intent was to live there, we are can have private resident relief and not pay CGT? But other stuff I’ve read suggests that’s not true as we rented it out and never lived there.

Has anyone been through similar and actually know? I have had conflicting advice so far!

The house you rent out is not subject to cgt for the period during which your intention was to reside in the house at some point, eg retirement. From the point when you decided not to live in it you are then subject to cgt but only calculated from that point forwards.

So even though we have never lived in it and never will? @PrincessofWells

I’m not sure we have any way of proving that to HMRC, apart from the fact DH had to live at work for his job!

Belt and braces approach would be to live in the house for a little bit - say 6 months and then put it on the market and look for somewhere smaller - gives a bit of back up that you did intend it as your main home.

Yes I did think we might need to do that! Or, we will find better paid jobs and actually be able to live there! Thanks @Londonmummy66

your intention to occupy it ceases the moment you start to look for an alternative "main" home,

CGT is calculated in days, so you can easily quantify the period it lost its deemed main home status and apply that % to the overall gain. The rest is, as you know, fully covered by PRR due to the work related accommodation rule.

an HMRC computer will be notified of your purchase of a new home, Whether your CGT calculation is then pulled for checking is a matter of luck. Don't forget tax is based on self assessment, you declare what your moral compass wants to.

In this case a substantial PRR claim and a small CGT calculation based on the date you signed up with estate agents and started looking. Would be wise to keep evidence of when you started to look: rightmove printout with date? viewing dates? etc

I think you get the last 9 months exempt anyway so possibly the day we start looking for another house would fall within it that anyway! Definitely going to get some advice though as I’m finding it confusing to work out and we are really not trying to avoid paying tax we owe, but obviously less is better!

Honestly op if you're intending to sell I'd be inclined to move in whilst you do so. It'll be easier to sell without tenants in situ, and there's no point it being sat empty whilst you wait for it to sell as you'd have the bills to pay anyway. Doing this would also take the capital gains dilemma off the table.

@YourSnugHazelTraybake but living in it for a few months doesn’t necessarily mean you don’t have to pay CGT does it? I’ve read a few conflicting things!
The house we would want to buy (this is all a bit hypothetical at the moment!) would be worth considerably less so we’d need the weigh up the moving costs x 2 as well as factor in any CGT we’d need to pay.

That is all you need to do. No proof needed just intention to live in it at some point. It's designed to be helpful to people who have to live-in for their job.

Unnecessary

Yes

Here don’t be bothering paying the capital gains OP. If the tax man comes calling I would just say you were “badly advised” by Mumsnet.

Seriously I would move in when you are selling and by the time the process is complete you would not have to pay the CG tax.

In your case yes it will due to the work accommodation exemptions. You bought it intending to live there, it's the only property you own and the reason for not living there was due to work.

Do you not understand the phrase belt & braces - you do what is unnecessary bit safe??????

You do not need to live in the property in order to receive CG64555 relief. Do you not understand the word intention?

You are suggesting that op incurs extra unnecessary costs just because you do not have a clear understanding of the legal meaning of a word? I guess it's easy when it's not your money.

Op has indicated she will seek professional advice and that's an excellent idea.

How much roughly is the potential gain OP and what is the tax at stake?

correct, the 9 months is "deemed occupation" and is given precisely for the reason it allows for an overlap[ period between owning a property you are selling and taking up occupation in a new home you have purchased.

You are also however correct about "living in it" for a few months, The overriding principle, well established by case law, is: "degree of permanence, continuity and the expectation of continuity". HMRC may take the view that occupation of the property after ending job related and before purchase of the new home would be merely "temporary accommodation" not a "residence". However, the job related has without any doubt whatsoever established the property as entitled to PRR and therefore the 9 month deemed occupation.

You could live in it for up to 9 months after leaving the school accommodation without having any fears whatsoever of facing a CGT bill provided it sells before the end of that period. Only if it takes longer than 9 months to sell it would the question of the quality of your occupation of it arise.

CG64460 - Private residence relief: only or main residence: meaning of residence: Goodwin v Curtis - HMRC internal manual - GOV.UK

CG64455 - Private residence relief: only or main residence: meaning of residence: the meaning in a wider context - HMRC internal manual - GOV.UK

CG64985 - Private residence relief: final period exemption - HMRC internal manual - GOV.UK

PS date of sale means date contracts were exchanged, not the completion date unless there was some significant condition in the contract which could only be met when completion took place. Such a condition would be extremely rate in UK house buying contracts.

Thank you so much. I’ll definitely speak to a tax accountant too but out of interest @Wot23 and @PrincessofWells you sound very knowledgeable - is this your profession?

@AmpleLilacQuail I think around £50,000.

I have done hundreds of PRR questions over the years and do try to keep up to date with recent law, but don't hold me to being bang up to date, so getting your own professional advice is wise.

Thank you @Wot23 - I appreciate your help so much! Is there a limit to how long we can live out of the intended residence? e.g. if we end up moving to another job with accommodation, could our house still be rented out for another ten years without having to pay CGT?

Definitely worth paying for decent advice for a £50k gain. Per the legislation, you can claim 4 years deemed occupation (while you intended to take up residence but couldn’t because of your husbands employment) plus 9 months. That is as per the example in the HMRC manual linked in your OP but there is the relevant legislation also - https://www.legislation.gov.uk/ukpga/1992/12/section/223

CGT on residential property must be submitted to HMRC and tax paid within 60 days of completion- https://www.gov.uk/tax-sell-property

Having been a tax advisor for many years - yes I do understand the legislation. However, having been a tax advisor for many years I also know what it can be like trying to prove intention if the Revenue query something. Hence my advice to live in the property for a short period of time before putting it on the market. Hence my description of my advice as belt and braces - ie adding in an unnecessary extra layer for additional security..........

In terms of advice, is there a particular person I should be going to? Accountant / tax adviser?