A couple of months ago in the article entitled “A Flipping Nuisance” I explained that the period at the end of an individual’s ownership of a home that will automatically contribute to the total Principal Private Residence (PPR) exempt amount for Capital Gains Tax (CGT) was being halved from 36 months to 18 months from April 2014. This final period qualifies no matter to what use the property is actually being put in this period, provided it had previously qualified as the main residence for tax purposes at some point. This relief was originally granted in order to allow people time to sell their properties when they had to relocate but the sluggish housing market had hindered a quick sale.
Whilst the halving of this 36-month period to only 18 months may cause some to become exposed to CGT, there is a useful exception to the reduction.
This curtailment will not apply if, at the time of disposal of the property, you or your spouse / civil partner are either disabled or in long-term residential care, provided neither of you have any other property that qualifies as a PPR. For these purposes, a residential care home is defined as one that provides accommodation together with nursing or personal care – so sheltered accommodation would be unlikely to qualify, nor would living with a relative. An individual will qualify if, when their property is sold, they have either been resident in care home for at least three months, or can be expected to remain a resident for three months.
In order to qualify as disabled for this extended relief, you or your spouse need to be in receipt of payments such as Attendance Allowance, the middle or higher rate of the care component of Disability Living Allowance, or personal independence payments; or suffer from a condition (as defined by the Mental Health Act) that prevents you from looking after your own affairs.
If eligible, you can continue to claim 36 months relief for exemption under the PPR regime, even if your property has been let or simply up for sale during this period. It is interesting to note that it may even be possible to give the property away and still obtain the extended relief (should you otherwise qualify), because the legislation states that the property needs only be disposed of and not necessarily sold.
It is also important to note that the qualifying criteria are tested at the time of disposal – so if, for example, an elderly gentleman moved out of his home to live with his son and sold his former home, he would only receive 18 months’ of relief. However, if he had moved into a care home instead and resided there for a period of three months before selling his former home, increased relief of 36 months would be granted.
In practice, however, it is often the case that the elderly or infirm will qualify for Attendance Allowance or a similar payment before taking up residence in a nursing home anyway, so the timing aspect, whilst something to consider, may prove to be only a small wrinkle in this relief.
For further information on any of the above points or to discuss your tax affairs generally, please do not hesitate to contact Robin Beadle.