Claiming Private Resident Relief For Periods Of Non Occupancy

Introduction

Sylvia purchased a property ten years ago. She lived in it for two years before being seconded by her employer to work in another part of the UK. Sylvia lived there for five years before being seconded to work overseas for one year. She remained living overseas for a year after her employment ceased before coming back to the UK to live in the property for a final year.

To assess Sylvia’s entitlement to private residence relief (PRR) the rules surrounding periods of non-occupation must be considered.

Non-occupation

The basic principle of PRR is that if an individual occupies a property as their only or main residence throughout their period of ownership, full relief from capital gains tax will be available on any gain generated on the sale. However, there are a number of occasions where an individual will be treated as though they were in occupation of a property and so obtain relief for periods when, in fact, they were absent from the property.

The final period of ownership

Probably the most common scenario where relief is available despite not being in occupation of a property is the final period of ownership. Since April 2020 the final period is nine months.

The intention of the exemption is to aid sellers who are having difficulties finding a buyer, however, the final period of ownership will always qualify for relief as long as the dwelling has been its owner’s only or main residence at some point in their period of ownership. This is regardless of having difficulties finding a buyer or the use of the property during that period.

Where the individual is a disabled person or a long-term resident in a care home, the final period of ownership is 36 months.

Delayed occupation

A further scenario where a period of non-occupation will be treated as a period of occupation is where there is a delay in taking up residence of a dwelling. From April 2020, PRR under s.223ZA Taxation of Chargeable Gains Act 1992 (TCGA) will be available for the period between acquiring a property and moving in, where the following conditions are satisfied:

• occupation of the property happens within two years of purchase;
• the property was not another person’s residence during the period of non-occupation; and
• a qualifying event happens during that period of non-occupation.

A qualifying event means the delay was either due to the completion of construction, renovation, redecoration or alteration of the property, or because the individual does not move in until they dispose of their previous residence.

Absences under s.223

There are three types of absence listed in s.223 TCGA that can qualify as deemed occupation. 

1. The first is a period of absence for any reason of up to three years.

For the relief to apply, there must be a period of actual occupation of the property both before and after the period of absence.

      2. The second is where an individual works in an employment or office outside of the UK, a period of absence of any length will be treated as a residence. The relief also extends to an individual who lives with a spouse who has an office or employment overseas.

All of the individual’s work duties must be performed outside the UK for the relief to apply. Holidays in the UK can be ignored, but incidental work in the UK cannot.

Where an individual is prevented from returning to a property as a consequence of their employer requiring them to reside elsewhere, the requirement to occupy the property after the period of absence is relaxed.

     3. Finally, if an individual is prevented from residing in a property due to working elsewhere in the UK (or as a result of a condition imposed by their employer requiring them to reside elsewhere) a period of absence not exceeding four years will be treated as a period of occupation.

Again, the requirement to occupy the property after a spell of UK working is relaxed if the individual is prevented from doing so by reason of their employment.

Adding it all up

The periods of absence are cumulative and can be applied in the way that is most beneficial for you. So let’s look at how the various deemed periods of absence can apply to Sylvia.

The first two years of ownership are covered by actual occupation as an only or main residence. Four of the five years working in the UK are covered by reason of employment in the UK, with the remaining year being covered by the “any reason” allowance. The year working overseas is covered by reason of employment outside the UK, with the year spent overseas post-employment again covered under the any reason allowance. The last year of ownership is again covered by the actual occupation as a main residence.

Sylvia can therefore claim PRR in full – even though the actual occupation was only three out of ten years.

Job-related accommodation

Where an individual owns a dwelling but lives elsewhere in property which is job-related accommodation, the dwelling will be treated as being occupied as a residence for as long as there is an intention to occupy the property in due course as their only or main residence.

Accommodation will be job-related if it is provided by reason of a person’s employment and where it is necessary for the proper performance of their duties, or is provided for the better performance of their duties, or is provided as part of special security arrangements. Accommodation will also be job-related if the individual is contractually required to live there to conduct a trade.

Example. You are employed by a farmer who contractually requires you to live in a cottage provided by them in order to conduct the farming trade and therefore the cottage is job-related accommodation. As you own a property that you intend to occupy as your main residence at some later date, the property will be treated as a residence for as long as the intention exists.

You are concerned that the letting of the property will impact this. But CG64555 confirms that relief will still apply even if the property was never occupied and even if it has been let throughout the period of ownership. As long as there is an intention to occupy the property at some point, PRR will apply.

The challenge will be to demonstrate that this intention existed if the claim is queried by HMRC.

Once the intention to occupy ceases, the property will no longer be treated as being occupied. 

There are periods of absence that can be deemed as occupation, including those due to working elsewhere in the UK or overseas that should help you. You could qualify for PRR, even though you have never occupied the property if you have been required to live in job-related accommodation, and there was a genuine intention to occupy the property as a residence in the future.

If you have any further queries on this subject please reach out to us at 01902 711370 or email enquiries@uklandlordtax.co.uk if you have any questions or require our expert assistance.

Thandi Nicholls Ltd
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Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG