More than one home? A guide to Main Residence & Capital Gains Tax

When selling a property that’s always been your home there’s an exemption from Capital Gains Tax through Private Residence Relief – But, what about if you have two properties? This is more complex, so here’s what you need to know.

Firstly, it’s important to know that individuals are only allowed one main residence at a time in order to qualify for the relief and married couples/civil partners are also included together, so they may only have one main residence between them.

Does it matter which property is the main residence?

HMRC do not have a definition of a main residence and the determination of this therefore falls to a subjective interpretation of facts and case law. If you have more than one property and reside in both, have you considered where you call home and where your exemption lies?

To determine an individual’s main residence, HMRC split this into three main categories:

1. Quality
2. Quantity (time spent)
3. Intention

When weighing up the factors of an individual’s main residence, quality and intention are the key factors.

A taxpayer could live in a property for several weeks and still qualify for the relief, whereas someone who has lived in a property for several years may not. This factor becomes important when taken into consideration with the quality of residence and intention.

The quality of residence can be illustrated in a number of ways:

• Is the property furnished (to their taste)?
• Are meals eaten at the property?
• Is this where laundry is done?
• Are they registered to vote at the address?
• Is this the main address for post, e.g. bank statements, mortgages?
• Is this close to their place of work?
• Are they registered nearby for doctors and dentists?
• If they have children, is this where the family resides and close to the children’s school?

There must also be a degree of permanence, or an intention for it to be permanent (i.e. where you would call home). For example, if the property was put on the market for sale soon after moving in, this would not be deemed to demonstrate an intention of permanence.

It’s vital to have all your details in order

As we are seeing across all areas of taxation, HMRC receive and have access to an increasing array of records and information from various sources regarding taxpayers, and it’s important to ensure you have considered your position and your affairs are in order.

If HMRC have details of your affairs, perhaps if you complete a Self-Assessment Tax Return, is your correspondence address correct or does this need updating? For example, the address shown on your tax return, the address held with Companies House and address on third party records (dividend vouchers, building societies for bank interest).

In some cases, HMRC have been able to obtain details from social media, emails, letters, and interviews with associates. This helps to stress the importance of the intention of the taxpayer to avoid any doubt.

Nominating a main residence

It’s possible to make an election to nominate your main residence to HMRC (where you own more than one property and use them as a residence) and there’s a time limit which applies to this. This is generally two years from the point at which you have a combination of residences.

Where a valid election has been made for a property, and it’s used as a residence, this eliminates any doubt over the situation as it’s then not necessary to prove that this property was the “main” residence as above.

Where no election has been made, the case is judged on the facts. Please seek guidance before making an election to ensure you are aware of any potential risks.

There are a number of other factors that may also impact the main residence exemption (job related accommodation, marriage etc), and if you’d like to discuss your position and any potential planning, please contact us.