Probably the second most frequently asked question on the Tax Insider website is “how do I make this property my main residence?” – the most popular is “should I use a limited company for this venture?”.
Everyone is aware that when you sell your “Only or Main Residence” (“OMR”), you are, generally speaking, exempt from capital gains tax on the gain you make so it is most important to understand what is, and is not, an OMR.
In many cases, the answer is obvious – if you only own one house and you live in it as your home then it is your OMR. This article looks at some of the more tricky situations, typically where someone has more than one residence.
If you own two properties and use both of them as a residence, then you have a choice:
You can write to the inspector of taxes within two years of acquiring the second residence and nominate which of the two will be treated as your OMR
You can do nothing, and then the question of which is your OMR will be decided based on the facts
What criteria do HMRC use to determine which is your OMR?
To quote from their Capital Gains Manual:
“The following list of criteria, although not exhaustive, may be useful.
- What address is shown on declarations made on return forms.
- What address is shown on third party correspondence in the file such as dividend warrant counterfoils.
- If a mortgage has been used to acquire one or more residences, on which mortgage is mortgage interest relief due. (This one is no longer relevant, as the law on mortgage relief has changed)
- What security of tenure did the individual have in respect of each residence.
- How is each residence furnished.
- If the individual is married or is in a civil partnership where does the family spend its time.
- At which residence is the individual registered to vote
- Where is the individual's place of work.”
Obviously, it is better to nominate your main residence yourself as this brings with it a number of planning opportunities – see for example my article “Where do you live” in the June 2006 edition of the Tax Insider.
Making a property your OMR
If a property has been your OMR at any time during your ownership, then it is deemed to be your OMR for the last three years of your ownership of it, even if you had another OMR at that time. There is also a relief of up to £40,000 against a gain on a property that has been your OMR at any time if you have also let it as residential accommodation at another time during your ownership of it.
As a result of these reliefs, I am often asked by property investors planning to sell a buy to let property how they can make that property their OMR so that they can take advantage of these reliefs.
The other question is “how long do I have to live there?”.
They say of those magnificent yachts at the Boat Show: “If you want to know the price, you can’t afford it” and I am tempted sometimes to answer questions about OMRs with: “if you need to know how to make it your OMR, it probably isn’t your OMR”.
I have heard of property owners being advised to get the utility bills put into their names and to inform HMRC of their change of address, as if this was enough. It is not. Unless you actually live in the property and make it your home, it will not be your OMR.
If you want to move into a buy to let property so that it becomes your OMR, then you need to bear all the following in mind:
You (and your spouse or civil partner) can only have one OMR at any one time, so if you have another property you must make the nomination described above – note that if the BTL property has been let, the two year time limit for the nomination starts when the tenants leave and it becomes available for you to occupy.
You should make sure you satisfy all the criteria from HMRC’s instructions quoted above.
You must actually move into the property and use it as your home – just camping out in it for a few weeks with the bare minimum of furniture is not enough.
How long must I live there?
There really is no answer to this question. Take these two examples:
Joe, who has no other properties, gets a job in Liverpool and buys a flat there. He moves in, but after he has lived there for a week he wins the jackpot on the Lottery. He lets the flat and goes on a world cruise for six months. When he returns, he buys a large detached house and moves into it. He sells the flat a couple of years later. The gain on the flat should be exempt because for that one week before he won the lottery, it was clearly his OMR and only the lottery win meant that he did not continue to live there. Because it was his OMR for that one week, the final three years of his ownership (in this case, the whole period of ownership) are exempt from CGT.
Jill, who owns a house and a flat in another part of town, lets the flat and lives in the house. She decides to sell the flat, so she evicts the tenant and moves in. She informs HMRC and her bank, etc., of her change of address. She leaves most of her furniture at the house which she lets her sister use while she is living in the ex-rented flat. She does not like the neighbourhood of the ex-rental flat and so she spends most weekends with her sister in her old house.
After eighteen months of this, she sells the ex-rental flat. I suppose it is possible she will get away with this but if HMRC were to start an Enquiry into her return and find out what had actually been going on, they are very likely to argue that her occupation of the flat was a sham designed to get tax relief on it as her OMR, and deny her that relief.
These are of course two extreme examples but they illustrate the basic principle – if it really is your home – or one of your homes, in the case, say, of a weekend cottage, then it can be your OMR. If you are just living there with one eye on the calendar waiting until you can sell up and claim the relief, then it is probably not your OMR.
