Round the houses - changes to Capital Gains Tax (CGT) rules on properties
Relief from CGT on your main home is extremely valuable and, although the rules are detailed, they have been well understood. However, recent tax cases and the upcoming changes mean that it is worth having another look at your position.
If you have more than one home, the one which is to be treated as a main residence is a question of fact unless you have made an election to nominate the property of your choice. Once an election has been made (there are two years in which to make the first election) it can be varied at any time subsequently. If a property has qualified at any time as a main residence, until 6 April 2014 the last 36 months of ownership qualify as an exempt period when calculating if there is any CGT on a sale.
These two principles can be combined to minimise the tax payable on disposals of your properties. However, from April 2014, the final qualifying period will reduce from 36 to 18 months which may lessen the incentive to vary the election. The comparative values and gains on the properties will determine whether that is worthwhile.
The 36 months relief will continue to apply to disabled people or those moving into care homes. A care home is a recognised establishment which provides accommodation and nursing care.
Importantly, there have been some recent decisions in the tax tribunals where the quality of the occupation of the property was examined and not found to be enough to qualify as a residence as such. This shows that HMRC are looking very carefully at what is capable of being a main residence at all. If you have more than one home, it is well worth reviewing your position.
Non UK resident changes
CGT does not generally apply to people who are resident outside the UK. However, from April 2015, the tax will apply to non UK residents who sell UK residential property. This extension was forecast but is not quite as bad as it may have been. It appears that the tax will only apply to sales after 5 April 2015 and will be based on the increase in value after that date. We do not yet know whether the main residence relief will be available to reduce the gain taxable in this way but we expect the draft legislation to be published in December 2014.
Date: 27th March, 2014
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