This is a very important question when it comes to Capital Gains Tax (CGT) and Private Residence Relief.
The relief means that any gain on the disposal of your main residence is usually exempt from CGT, provided you meet certain conditions:
- The property has been your only or main residence throughout the period of ownership: or throughout the period, apart from all, or any part of, the final nine months of ownership. For disabled persons or those moving into a care home, this final period can be up to 36 months.
- You have not been absent from the property during the period of ownership, other than for certain reasons permitted in the legislation. We are happy to outline these rules more fully.
- Part of the property has not been used exclusively for business purposes. It’s exclusivity that is the issue here. Using part for business, so long as there is also non-business use, is acceptable.
- You have not let out part of the property. This restriction does not apply to having a lodger.
- The grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total, unless you can demonstrate that a larger area is required for reasonable enjoyment of the property.
- The property was not bought in order to make a gain on disposal.
For married couples and civil partners, it should be noted that only one property per couple can count as the main residence.
What does it mean to occupy somewhere as your residence?
The word residence isn’t defined in the legislation, so HMRC will be on the lookout for evidence that a dwelling is actually your home. This, HMRC says, is a test of ‘quality rather than quantity’, involving a degree of ‘permanence, continuity and the expectation of continuity’.
Above all, it’s a question decided on the facts of the individual case. That, regrettably, was where one taxpayer fell the wrong side of the rules at the Tax Tribunal, and was faced with a CGT bill of over £43,000 as a result.
Taxpayer, Mr Patwary, lived with his parents in London before purchasing a property in April 2010. He claimed that he had lived at his newly-purchased property with his girlfriend (subsequently his wife) until 2013, a friend also moving in from 2011.
On the breakdown of his marriage, Mr Patwary moved back to his parents in 2013. The property was then sold in 2016. He lost his appeal, however, for lack of evidence proving he had actually lived in the property— as opposed to simply owning it.
What sort of evidence was the Tribunal looking for?
Registering to vote at the new address; getting council tax bills in his name at that address; a television licence or parking permit for the address; sight of his marriage certificate giving the relevant address — any of these might have been persuasive evidence.
Mr Patwary said, quite plausibly, that he had not changed his address in various instances because he worked with his father and could therefore pick up his post daily. However, changing his address with the bank or HMRC might have helped his case.
Ultimately, the Tribunal concluded that it had seen ‘remarkably little evidence… to demonstrate a period of residence in the property of over three years’.
So, if HMRC asks — can you prove that you are occupying your home as your main residence?
Though not mentioned in Mr Patwary’s case, other helpful indicators include: registering with a local doctor or dentist; a spouse or civil partner registering to vote at the address: using the address for bank and building society correspondence, for credit cards and utility bills; registering and insuring a car at the address.
It helps to have the paperwork to hand, should you ever need it.
