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bigduckontax
bigduckontax, Accountant
Category: Tax
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Hello I've owned a property (by the coast) for the last

Customer Question

Hello
I've owned a property (by the coast) for the last 6 years and now want to sell it. I'm wondering if HMRC would allow a PRR/ lettings relief claim.
I bought it mainly with the intention of letting it commercially but did want to use it myself for leisure for a while.
It turned out I went up there one weekend a month for 10 months before I arranged the letting. The property didn't need renovation etc and I did go up there to enjoy the area. The property has been let full time for the last 5 years and I have not returned in that time.
While I used it it was furnished (tv, beds etc) and I paid council tax, tv licence and utilities. I didn't get a landline phone installed, nor register on the electoral roll or change my address with DVLA/ Bank/ etc.
It's the only property I own as I live with my parents 100 miles away. I could have used the property more than I did but only wanted to visit 1 out of 4 weekends and after 10 months had had enough of going up there.
Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
As it was your sole or main domestic residence. note the word 'or' not 'and' then you could fight to escape CGT altogether. However, all is not lost. Fortunately you were in occupation before you let it out so Lettings Relief (LR) will apply. You need to do the following calculations.
Work out the total ownership in months and ditto the let period. Then to the let period add 18 as you are deemed to be in occupation for the last 18 months of ownership even if you were not. The fraction then created is applied to any gain made on disposal and that proportion only is liable to Capital Gains Tax. LR will then be available up to 40K to offset any gain. You may well find that the actual tax payable will be substantially reduced or even dropped to zero.
I assume that you have been declaring the rental for Income Tax and my answer is based on that assumption. Many of your expenses are allowable against such income. Here is Which's summary of these:
'The most common types of expenses you can deduct are:
Water rates, council tax, gas and electricity
Maintenance and repairs to the property (but not improvements)
Contents insurance
Interest on a mortgage to buy the property
Costs of services, including the wages of gardeners and cleaners
Letting agents fees
Legal fees for lets of a year or less, or for renewing a lease of less than 50 years
Accountant’s fees
Rents, ground rents and service charges
Direct costs such as phone calls, stationery and advertising for new tenants
The expense should be incurred wholly and exclusively as a result of renting out your property.'
I do hope that I have been able to shed some light on your position.
Customer: replied 2 years ago.

hi keith

thanks for your reply. my worry was that my occupation may not have the degree of 'permanance and continuity' needed for prr, i want to be straight with hmrc and as my intention on purchase was to let it after a certain period would that also count against the degree of permanance needed?

thanks

Expert:  bigduckontax replied 2 years ago.
The general consensus of opinion on this site is that 6 months occupation will suffice. Remember that is your sole or main domestic residence; you own no other. You had well over that before you decided to rent and a very good reason to act as you did.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Customer: replied 2 years ago.

Hi again Keith,

Sorry to come back but can you just confirm for me that the 6 month period of occupation you refer to doesn't mean full- time occupation- one weekend a month for 6 months would be OK?

Have HMRC accepted this in cases you and your colleagues have dealt with?

Thanks very much

Expert:  bigduckontax replied 2 years ago.
You owned it and occupied it as your sole or main domestic residence (note the 'or') and also lived elsewhere because of other circumstances. There is no requirement for you to mention the detailed arrangements to HMRC.
Customer: replied 2 years ago.

Thanks Keith. Just for peace of mind if HMRC were to find out I'd sold the property (I guess they have ways of finding out) and they asked me why I hadn't declared any gain please confirm that I would definitely be OK based on the facts I've given to you.

Thanks

Expert:  bigduckontax replied 2 years ago.
HMRC are automatically advised of any disposal by the District Valuer, an HMRC official to whom all such transactions must be reported.
You must declare the gain in your annual self assessment tax return for the year in which the sale takes place. You make your claim to Lettings Relief at the same time.
Customer: replied 2 years ago.

Thanks but if HMRC were to challenge the reliefs claimed I would definitely be OK?

Expert:  bigduckontax replied 2 years ago.
You should be, but one can never be to sure which way the HMRC cat will jump.
Customer: replied 2 years ago.

No, I suppose not!. Can you say though if they've accepted broadly similar circumstances to that I've outlined in your experience. It just seems such a grey area and as a layman one weekend a month just doesn't seem to fit the bill of 'living' in a property as a home.

Last one I promise!! and thanks for your help

Expert:  bigduckontax replied 2 years ago.
Legally you owned it and you were in possession. There is no getting round this nice point of law.

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