25 February
By Chris Gumbley
Categories: Personal/HMRC/Taxation

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Home Sweet Home

Our expert Chris Gumbley looks to answer one of the most frequently asked tax questions, “How long do you have to live in a house before it becomes your main residence for tax purposes?”

If I had a pound for every time I have been asked this question I would have enough to buy my Bradford City season ticket every year.

The answer is important because any gain you make on the disposal of your main residence is usually exempt from capital gains tax.   Sadly, there is no right answer to the question.  Why?  Because it is not the amount of time you spend in a house which determines whether it becomes your main residence.  It is the quality of that time.  This point was emphasised in the recent case of Yechiel v HMRC.   

The taxpayer moved into his house for the first time in 2011.  He lived there for about four months before putting it on the market and moving back in with his parents.  The property was sparsely furnished.  He had a bed and slept there every night.  He ate at his parents’ house or bought takeaway meals.  On the occasions he ate at the house he did so standing up or in bed.  He took his laundry to his parents’ house.

The First Tier Tribunal found that the taxpayer’s occupation of the house did not have the necessary quality to constitute residence.  Specifically, it noted that “the occupation of the house should constitute not only sleeping but also periods of ‘living’, being cooking, eating a meal sitting down and generally spending some periods for leisure there”.   There was also a lack of evidence of a firm commitment to living in the house long-term.

So quality, not quantity, is key.  Provided the necessary quality exists even a short period of occupation is sufficient to make a house a main residence for tax purposes.

The CGT main residence exemption is a valuable and ostensibly simple relief.  But it is littered with pitfalls.  Disputes about its availability are commonplace. 

Tax planning is just as much about avoiding pitfalls as exploiting opportunities.

We can help

At Naylor Wintersgill, our strategic personal tax planning service can help to ensure your finances are optimised to suit your lifestyle and meet your future plans in the most tax efficient way possible.

If you would like to discuss your individual circumstances with one of our tax experts, contact us now for support.