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In the third of a series of articles, Malcolm Finney, author of 'Personal Tax Planning: Principles and Practice', looks at 'deemed' periods of occupation of the residence.

Deemed Periods of Residence

In ascertaining the capital gain subject to CGT (if any) on the sale of an interest in a sole or main residence any part of the capital gain attributable to periods of non-occupation (when the property is not used as a residence) would not on normal principles qualify for exemption. However, specific provision is made under which certain (not all) periods of absence (i.e., non-occupation) are treated as if, during such periods, the property is still the sole or main residence (TCGA 1992 s 223). These periods are:

• any period(s) of absence not exceeding three years;
• any period of absence throughout which the individual works in an office or employment all the duties of which are performed outside the UK; and
• any period(s) of absence not exceeding four years throughout which the individual is prevented from residing in the property in consequence of the situation of his place of work or in consequence of any condition imposed by his employer requiring him to reside elsewhere.

For the above periods of absence to so qualify it is necessary that:

• both before and after the period there is a time when the property is the individual’s sole or main residence; and
• throughout the period of absence the individual has no sole residence or main residence eligible for relief.

Where any of the above periods are exceeded only the excess element fails to qualify (i.e., only the excess element is not regarded as qualifying as the individual’s sole or main residence).

The individual may qualify for each of the three periods of absence (i.e., the periods are additive).
 
The above periods, if satisfied, are in addition to the last 36 months of ownership which are always treated as the individual’s sole or main residence without qualification.

Example

Tommy Television purchases a property on 1 January 1990 moving in on that day.

Due to his occupation as a travel agent, Tommy often travels. In particular, he works abroad between 1 July 1995 and 30 June 2000 and between 1 August 2002 and 30 September 2004.

He is also required to work some 300 miles from his home for the period 1 May 2005 to 31 December 2005 and stays in a local hotel for this period.

He moves back into the property on 1 January 2006 and sells it on 15 August 2010.

All the conditions for the property to be treated as Tommy’s sole residence during each of the periods of absence are satisfied.

On sale the whole of the capital gain is thus exempt.

Some points to note with respect to satisfying the conditions relating to the periods of absence are as follows:

• any failure to reoccupy the property after a period of absence precludes that period from qualifying;
• for the period of absence outside the UK to qualify the individual must be an employee; thus a sole trader or partner in a partnership is not eligible;
• it is irrelevant whether the property is let or not during the periods of absence; and
• the existence of another residence qualifying for sole or main residence treatment during the period of absence precludes any of the periods of absence from qualifying.

Originally by concession (ESC D4), but now statutorily provided (SI 2009/730; effective in relation to disposals on or after 6 April 2009), even where the individual does not resume residence in the property after a period of absence due to work the period is still treated as qualifying if the reason for the failure to reoccupy the property is due to the terms of the employment requiring the individual to work elsewhere (either overseas or elsewhere in the UK).

However, reoccupation of the property after an absence not exceeding three years, is required if the property is to be treated as the sole or main residence during that period of absence.
 
Similarly, originally by concession (ESC D3) but now statutorily provided (SI 2009/730; effective in relation to disposals on or after 6 April 2009), where one spouse satisfies the conditions relating to the periods of absence relating to work (whether in the UK or overseas), and both spouses are living together, the other spouse is treated as also satisfying those conditions.

However, satisfaction of the conditions attaching to the periods of absence includes the need to satisfy the requirement that at no time during the period of absence has the individual another residence eligible for qualification as a sole or main residence. Thus, if the individual works overseas and/or elsewhere in the UK and, for example, leases a property this property is eligible for sole or main residence treatment (thus the condition is breached). In practice, HMRC do not appear to take this point; which arguably is a nonsensical condition.

However, for certainty, the individual should make an election in favour of the main home for the relevant period of absence (although arguably for the period of absence the main home is not in fact a residence due to its non-occupation!). Nevertheless, it is understood that HMRC allow an election in such circumstances.
 
Where an individual is required to live in job-related accommodation (e.g., a caretaker) any property he owns and which he intends to occupy as his sole or main residence is treated as if he has occupied the property as a residence (TCGA 1992 s 222). This applies even if, in the end, no actual occupation of the property prior to disposal occurs.
 
Where a property is purchased but due to work with respect to alterations, etc., immediate occupation of the property is prevented for a period of up to 12 months the first 12 months are nevertheless treated as a period of residence. This also applies if occupation is prevented due to the property being built.