Capital gains tax on private residence

How long must you live there?

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Hi,

I've been asked an unusual question by a client and HMRC's guidance doesn't seem very definitive.

He's just purchased a new property, that he intended to live in with his wife and children. He submitted plans to the local council to make some major improvements to the property ahead of moving in, but his plans have been rejected twice. They've since accepted some simplified plans.

However, our client had a distinct vision of how the house would look after the improvements and saw it as his home for the majority of his life. Due to restrictions on the improvements, the property no longer fulfills his vision. His plan is to renovate the property over the next 4-6 months, and then move in. During this time, he'll be looking to buy a new property that meets his vision. 

If he finds a property, say 3 months after moving in and sells up to move, would he still be entitled to private residence relief? The improvements to the property would result in a capital gain, and isn't sure if it'd be subject to capital gains tax.

He admitted that he's quite picky when it comes to property, and might end up living there for a few years before he finds somewhere better. But he could find somewhere almost instantly after moving in.

Not sure if this complicates things any further, but he is the director of several limited companies, some of which deal specifically in property development.

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By AlgernonB
23rd Sep 2016 15:11

Whether a property is or has been your PPR is a question of fact, that is, you must have lived in it at some point, as your PPR. Note, that the property must be capable of being lived in (i.e. all services such as power, water etc., must be working and it must have sufficient furnishings to ensure comfort. No kipping on a Klondike roll in a bare shell of a building, in other words) Tax Law is vague on how long the period or occupation should be, so in theory, a short stay such as three months should be long enough to establish it as the PPR. Note also that a person (and married couple or civil partners) can only have one PPR between them, and if they have more than one property, and the other is PPR due to an election, the election will need to be amended, however temporarily. Having established the property as PPR, the CGT exempt period will run for the whole period of owner occupation, plus the last 18 months of ownership, regardless of use it was put to. The period when it is being built, services installed etc., may be ignored as it's not strictly speaking a residence until they're all installed. Any period of non--occupation outside of these exemptions will be chargeable to CGT-remember the annual exemption (or two, if a married couple) is deductible, as are any capital losses brought forward or made in the year of disposal.

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Stepurhan
By stepurhan
23rd Sep 2016 17:22

If he is already looking for a new property when he moves in, you may have a problem. PPR isn't just a case of it being where you live. It must be occupied with the aim of it being a permanent residence, even if it is only subsequently occupied for a short period of time.

A few years old now, but this article on PPR relief being denied for temporary occupation might help.

https://www.accountingweb.co.uk/community/industry-update/gabelle-tax-an...

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