Tax effects of living away from your home
Many homeowners assume that if a property has been their main residence at some point, any gain made on sale will automatically be free from Capital Gains Tax (CGT). Whilst in many cases, this is correct there are exceptions. For example, periods spent living away from your home can sometimes reduce the amount of Private Residence Relief available.
The good news is that some periods always qualify for relief. In most cases, the final 9 months of ownership are automatically exempt, provided the property was your only or main residence at some stage. There can also be relief for up to the first two years of ownership where a property was being built, renovated or where you were unable to move in immediately.
Additional relief may also be available where you temporarily lived elsewhere. Absences of up to three years for any reason can qualify, while periods of up to four years may qualify where you had to work elsewhere in the UK. Time spent working overseas can also qualify for relief in full. Normally, you must have lived in the property before and after the absence unless your work prevented your return.
Where more than one property is owned, the rules become more complicated as generally only one property can qualify as your main residence at any one time. Married couples and civil partners are also normally restricted to one main residence between them.
These rules can have a significant impact on the amount of CGT payable when a property is sold, particularly where second homes or lengthy absences are involved.
