You are probably aware that the sale of a main residence is generally free of capital gains tax (CGT), but, when CGT does come into play, the rules can be complex. This is particularly the case around nominating a main residence if there are two or more properties, letting relief and whether reoccupying a property will increase the available relief.

Relief generally

For full relief, a property must be:

• your only or main residence throughout the period of ownership; and
• occupied subject to certain permitted periods of absence.

The permitted periods of absence include absences (for whatever reason) totalling up to three years, periods up to four years when employed elsewhere in the UK, and any periods (without limit) when employed overseas.

To qualify as a permitted period of absence, the period should normally be both preceded and followed by a period of occupation. This is why reoccupying a property might increase the amount of relief.

Nomination

If you have two (or more) properties, you can nominate one to treat as your main residence. Of course, there is no point nominating a property if it is not occupied.

• What catches many people out is that a nomination can only be made during the two-year period from when you first have more than one residence. This is a particular problem on marriage (or registration as a civil partnership) with each person owning a residence.
• After that, a nomination can only be made if a new two-year period begins following a change in your combination of residences.

If no nomination is made, the question of which property is your main residence will be determined by HMRC according to the facts.

HMRC will allow a late nomination outside of the two-year window if a person doesn’t realise that they have two potential main residences. For example, they might own a residence but work away from home and stay in rented accommodation during the week.

Letting relief

The letting relief rules were tightened up from April 2020. Previously, more generous rules meant relief was available for periods when an unoccupied residence was let out. For relief to be available now, you must be in shared occupancy with the tenant. So, no relief if the whole property is let.

A common misconception is that a period of letting before April 2020 will still qualify for relief, but this is not the case where the whole property was let.

 Reoccupation

Reoccupying a property prior to sale can be particularly beneficial if it converts unoccupied periods into permitted periods of absence.

• However, a period of reoccupation must be genuine – it isn’t sufficient for you to just spend a week at the property.
• It will be necessary to make the property your actual main residence again, with official bodies notified of the change of address. This will be impossible if a property is going to be sold to sitting tenants or sold with tenants in situ.

Periods of absence when employed overseas or elsewhere in the UK can still qualify if you (or your spouse/civil partner) cannot take up occupation again because of your employment, but there is no such get out clause when it comes to the three-year absence for any reason.