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Claiming Private Residence Relief for CGT
11 May 2015
How do you prove you have lived in a rented house to claim private residence relief is a question landlords frequently ask their accountant.
Claiming private residence relief (PRR) is not a problem for someone who has one property where they live as their main home – the property is always exempt from capital gains tax (CGT).
The issue arises for landlords in two cases:
• They have rented out a former home after moving on to live elsewhere
• They have rented out a home and then moved in to make the property their main residence
In both cases, when the property is sold, the CGT payable is reduced by PRR and letting relief.
Looking at tax rules for help with a time limit proves PRR is fruitless, as none exists.
However, two recent tax tribunal cases have confirmed some of the factors HM Revenue & Customs (HMRC) take into account to prove PRR.
These factors include:
• What was the taxpayer’s official postal address?
• Who paid the utility bills?
• Was any council tax exemption claimed for the property?
• Who was on the electoral roll during the PRR claim period?
• When was the home put on the market?
• Was the property financed with a buy to let or residential mortgage?
• Did the taxpayer have their driving licence registered to the address?
• Do bill payments tie up with the dates the taxpayer claimed residence?
• Is there any photographic evidence proving occupation?
• Was the property in a habitable state during the PRR period?
• Where do the taxpayer’s children live and go to school?
• Does the taxpayer have a spouse, and if so, where do they live?
• Is the property close to the taxpayer’s workplace?
These indicators come from the cases of Dalgety and Day v HMRC and Hartland v HMRC, which both went before the First Tier Tax Tribunal early in 2015.
For tax purposes, the how long a taxpayer lived in a home is not as important as the fact the property was their main home.
PRR reduces CGT on a your home to zero for the time you live there – and adds an 18 month CGT exemption as a tax bonus to allow you time to sell.
If you can claim PRR, you can also claim letting relief, which is worth up to £40,000 CGT reduction for each property owner.