In ascertaining the capital gain subject to capital gains tax (CGT) on the sale of a dwelling house, any part of the capital gain attributable to periods of non-occupation by the owner (i.e. when the property is not used as a residence) does not qualify for CGT exemption and thus a potential CGT charge arises with respect to the gain attributable to the periods of absence.
However, specific provision is made under which some (not all) periods of absence (i.e. non-occupation) are treated as if during such periods the property is still occupied as a residence and thus no CGT arises with respect to the gain attributable due to such periods of non-occupation.
There are two sets of circumstances where periods of absence are deemed to be periods of occupation:
(1) three-year absences; and
(2) Work related absences.
Three-year and/or work-related absences
Absences arising under any of the following circumstances are deemed periods of occupation:
• any period(s) of absence not exceeding three years; or
• any period of absence throughout which the individual works in an office or employment all the duties of which are performed outside the UK; or
• any period(s) of absence not exceeding four years throughout which the individual is prevented from residing in the property in consequence of the situation of his place of work or in consequence of any condition imposed by his employer requiring him to reside elsewhere.
The above periods are additive i.e. an individual may qualify for each period.
However, for such periods of absence to qualify as periods of occupation it is important that:
(i) both before and after the period of absence there is a time when the property is the individual’s main residence (i.e. the property where the individual mainly lives); and
(ii) throughout the period of absence the individual has no other residence eligible for relief (i.e. the individual during the period of absence does not live in another property which he/she owns or rents during this period).
Example 1
Joe purchases a property on 1 January 1990, moving in on that day. Due to his job Joe often travels. He works abroad between 1 July 1995 and 30 June 2000 and between 1 August 2001 and 30 September 2004.
He moves back into the property on 1 October 2004 and sells it on 10 March 2005. Whilst abroad he lives in property owned by his employer.
On sale, the whole of the capital gain is exempt.
Example 2
Mary purchases a property on 1 January 1990 moving in on that day.
Mary is required to work some 450 miles from her home in the UK for the period 1 July 1995 to 30 June 1997 and stays in a local hotel for this period. She moves back into the property on 1 October 1999 and sells it on 10 March 2001.
On sale, the whole of the capital gain is exempt.
Points to note
Some points to note with respect to satisfying the conditions relating to the periods of absence are as follows:
• any failure to reoccupy the property after a period of absence precludes that period from qualifying as CGT exempt;
• for the period of absence outside the UK to qualify the individual must be an employee working overseas;
• it is irrelevant during the periods of absence whether the property remains empty or is let; and
• the existence of another residence qualifying for main residence treatment (i.e. CGT exemption) during the period of absence precludes the period of absence from qualifying.
Example 3
Mary purchases a property on 1 January 1990 moving in on that day. Mary is required to work some 450 miles from her home in the UK for the period 1 July 1995 to 30 June 2000 and stays in a local hotel for this period.
On 1 July 2000 she moves back to live with her parents rather than reoccupying her property and sells her property on 30 June 2003.
On sale, the gain attributable to the period of absence (ie 1 July 1995 to 30 June 2000, 5 years) is subject to CGT as Mary did not live in it at any time after she returned from her period of absence.
Practical Tip
Try and avoid selling your main home after a period of absence before you re-occupy it after the absence; reoccupation, even for a short period of time, is sufficient.
Malcolm Finney
