A recent decision by the First-Tier Tribunal has confirmed that there is no minimum period of residence to secure the availability of private residence relief. All that matters is that there has been a period of residence as the only or main home. Private residence relief is available to shelter a capital gain on disposal where a person occupies a residence as the taxpayer’s only or main home.
Where a residence has been occupied as such, the final 18 months (three years for disposals prior to 6 April 2014) is automatically exempt, even if the property has not been occupied as a main residence throughout the period of ownership.
In the case in question, Mr Bailey bought a property (Richmond) in February 2008. The company was initially purchased by his property development company with a bridging loan. Mr Bailey intended to live in it has a home with his children and his partner and her son and to obtain a mortgage to buy the property from his company. He lived in the property for around two and a half months with his children while attempting to sort out his finances. Following the financial crash, he was only able to obtain a buy-to-let mortgage which precluded him living in the property. He took out the mortgage and let the property to a friend who died in early 2010. In May of that year he moved back into the property to undertake decorating with a view to moving in with his family. However, as result of his mental health this did not happened and the property was sold in August 2010 realising a gain. Mr Bailey had another property in Maidstone that he lived in when not in the Richmond property.
The Tribunal found that Mr Bailey had lived in the property as his main home, albeit for a short while. It was the quality of occupation that was important for determining if private residence relief was available, not the length of occupation. As the property had been his main home at some point, the final 36 months of ownership were exempt (the disposal being before 6 April 2014). He had owned the property for less than three years, consequently the full gain was exempt.
It should be noted, however, that the Tribunal found in Mr Bailey’s favour despite lack of documentary evidence in support of his residence and notwithstanding he had failed to elect for it to be his main residence rather than the Maidstone home. They relied on his oral evidence.
When purchasing a second home in which you intend to occupy as a family home, it is prudent to document this and also to retain evidence of occupation, however short, such as change of address, forwarding of post etc. It is also recommended to make an election for the desired property to be the main residence.
As the final 18 months of ownership of a property that has been a main residence is exempt, it can be beneficial to live in a second property for a short period as the main residence in order to secure this relief. Lettings relief may then also be available.