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Q I have owned and lived in my house from 1998 until November 2016 when my husband I moved into my mother’s house to look after her. Since then, we have rented our home out. We do not own another property.
When my mother dies, we have the option of buying out my siblings for my mother’s house and staying here. But having struggled for 18 years to pay off the mortgage, I want to avoid capital gains tax and may move back to our own property to live before we sell.
My question is: how long would we need to live in our own property again to not have to pay capital gains tax?
A Main residence relief, which reduces the capital gain taxed on the sale of a property that has at some point been your main home, can be restricted for periods where you haven’t lived in the property.
There are however some exceptions to this, which mean periods when you don’t live in a property are still covered by the relief.
One exception is any period of up to three years, provided you live in the property before and after the period of absence. If you moved back, three of the four years you have not lived in your house could also be covered by the relief, along with any time you live there after you move.
HMRC does however look at the intention behind living in a property and claiming relief, and if it considers that there was no degree of permanency (i.e. you always intended to sell after you moved back) they may deny relief for the three years of absence and the period after you move back.
Currently you have lived in the property for around 18 years out of your total 22 years of ownership. The last nine months of your ownership qualifies for relief by concession which means that, without moving back, around 85pc of the gain may already be exempt from tax.
As you should each have an annual exemption (currently £12,300) to offset against your share of any capital gain, the amount of any tax currently due depends on the gain on the house. As an example, if the house sells for £400,000, and you bought the property for £100,000, the potential gain is £300,000. You can also deduct any costs of purchase, sale and any capital improvements you have made to the house.
If relief was available on around 85pc of the gain, this would leave a taxable gain of around £45,000. After offsetting your annual exemptions, a gain of around £20,400 taxed at the highest rate of 28pc could mean a capital gains tax liability of just under £6,000.
Stephanie Tremain is a private client adviser specialising in UK tax at accountancy firm Blick Rothenberg.