Since April 2020, UK resident taxpayers have been required to report increases on residential property and pay the tax due within 30 days of completion. One of the critical features of the reporting government is that this 30-day reporting is only required when tax is due.
No particular return is needed if a gain is covered by the available annual exempt amount or losses formed before the end date.
In addition, 30-day reporting is not required when the gain is covered by private house relief or is partly covered. However, the non-exempt amount is otherwise covered by the annual exempt amount, or pre-existing losses etc.
One problem with these exemptions is that a homeowner may not have enough knowledge of how private house relief works. Especially in situations where there have been periods of absence or, there are multiple residences. They may incorrectly assume that the relief applies in total and therefore not make a report within the 30-day deadline. In this case, the disposal may not be reported to an accountant or tax adviser, meaning any mistakes may not be recorded, by which point penalties may have accrued.
Periods of absence
If the seller only has one available house and has lived in it throughout the period of ownership, total relief should be applied. However, specific periods of absence can count as “deemed occupation” as well.
There is a delay in occupation, up to two years can still qualify as an occupation for the relief. If the delay lasts longer than two years, none of the periods can be eligible. This is now a statutory, rather than discretionary, entitlement under s. 223ZA TCGA 1992.
The final nine months of ownership are treated as being occupied, as long as the property has been the primary residence at some point.
Other periods of absence also count as deemed occupation, as long as the property was used as the primary residence both before and after the absent period. These include:
- Periods of up to three years (in total) for any reason;
- Periods of absence due to overseas employment where all duties are carried out overseas;
- Periods of up to four years, working away meaning it becomes unrealistic to live in the property, and the employer requires the employee to work away from home.
Someone making disposal that has been absent from the property during the period of ownership should check that the requirements for deemed occupation have been met before assuming that relief will apply in full.
Suppose the seller has several occupied properties for some of the duration of the ownership. In that case, they may have made an election to nominate, which should be treated as the primary residence. There is no need to appoint the house which is the one occupied most of the time.
There is a two-year time limit, measured from the date the combination of available residences changes, for making a nomination. If no valid nomination is made, HMRC will determine the main residence. The seller should not assume that HMRC will view the property they have sold as their main residence for the relief.
Assuming that letting relief will cover part of the gain not covered by private residence relief could cause problems. The operation of lettings relief changed in April 2020 so that it only applies for periods where a landlord shares the occupation with their tenants. Before, it applied to any property let that has ever been the primary residence of the seller. Landlords who have moved out of the property and let it to tenants will no longer qualify. Again, if the seller is not aware of the change, they may wrongly assume that up to £40,000 of the gain is covered by relief.