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Gathering information in advance is advisable

Let property relief can reduce capital gains tax and is an important consideration when clients have let out residential property. The information needed can be difficult to find out and it is often easier to collect in advance.

Conditions

The following conditions need to be met for the relief to be available:

  • The property must  have been used (wholly or partly) as the private residence of the owner(s).
  • The dwelling house  in question (or any part of it) must have been let out by the owner(s) as residential property.

Relief

The let property relief reduces the chargeable gain by the lower of the following three figures:

  1. the main residence relief
  2. the gain attributable to residential letting
  3. the statutory limit of £40,000.

The relief applies to gains arising both from a residential letting of the entire residence while the owner is not occupying the property and to a partial residential letting while the owner is in residence.

Where a property, although part of the same building, forms a dwelling house separate from that which is, or has been, the owner’s dwelling house, relief will not be available. For example, if a fully self-contained flat with its own access from the road forms part of the property and the owner lives in another part of the property, then relief will not be available just because that self-contained flat is let out.

Husband and wife

Where husband and wife are joint owners, relief of up to £80,000 is potentially available to the couple as each person may be entitled to the relief of up to £40,000.

Trustees

Let property relief extends to gains accruing to trustees and qualifying for the main residence exemption (TCGA 1992 s 225) (HMRC manual CG64716).

Dependent relatives

The residential lettings exemption may be available where the property qualifies for the main private residence exemption due only to its having been occupied by a dependent relative on or before 5 April 1988. (HMRC manual CG64716)

Worked example

 

Mr A sold a house in London on 1 June 2017 for £800,000, having purchased it on 31 May 1995 for £200,000. Mr A has been resident in the UK for all this time.

Mr A lived in the house from 31 May 1995 to 31 May 2002 as his principal private residence. He then moved out and let the property as residential accommodation from 1 June 2002 to 31 May 2015. The property was then empty from 1 June 2015 until it was sold and Mr A did not reoccupy the property after 31 May 2002.

Sale proceeds                                                                   800,000

Cost                                                                                   200,000

Gain                                                                                   600,000

Less private residence relief

(7 years + 1.5 years)/22 years x £600,000    231,818

368,182

Less let property relief, lower of:

Main residence relief                             231,818

Gain attributable to letting                     368,182

Statutory limit                                          40,000

   40,000

Net chargeable gain in 2017/18                                         328,182

Article from ACCA In Practice