If you live in JRA and are renting out your property you DO NOT need to pay CGT if/when you sell your home.
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax that is applied to any profits you make when you dispose of something you own for more than £6,000*.
This can be gained by selling the item or swapping/giving it away.
It is the gain you make that is taxed, not the amount of money received.
This can include (amongst other things) a second property or buy-to-let (but not your main home)
It therefore follows that – if you are renting a property to live in, whilst then letting our your own home for someone else to live in – you should pay CGT, right?
Luckily – no! Well, not if the property you are living in is Job Related Accommodation (JRA)
If you are renting our your house whilst living in JRA, then it is perceived that you would really like to live in your house, but you can’t, as HM Forces have given you a house/flat/room to live in to be able to better carry out your work duties.
This is part of the Chargeable gains Act of 1992, section 222(3C) and is called 'Principal Private Residence' relief (PPR relief)
So will HMRC join the dots and know I’m in HM Forces so understand I don’t need to pay CGT if I sell my rented-our home?
No. not quite. HMRC advice contradicts itself a little on this.
One page says there’s no need to advise them
Another says you ‘may’ advise them
Another says you must if you want to be exempt from CGT.
So in my opinion, it’s better to tell them – then at least you’re covered.
They will not automatically know you’re in JRA – all the different parts of the government don’t really talk to each other in that way.
How do I tell them?
You need to write a ‘Letter of Nomination’ to HMRC and include the following information
· The names of the owners of the property
· Their NI number
· You also need to include the address of the property you are nominating.
· From what date the nomination began (this must be within the past 2 years)
Address to send the letter to is:
Capital Gains Tax Queries
HM Revenue and Customs
BX9 1AS
United Kingdom
Please click here for a 'letter of nomination' template you're free to use if you wish.
It’s always a good idea to send this via recorded delivery, then call them after a few weeks to make sure they have received it and it’s attached to your file(s).
Call: 0300 200 3300 or if you are outside of the UK +44 135 535 9022
Monday to Friday: 8am to 6pm
But what if I started renting out my house more than 2 years ago?!
That’s OK – as most people are utterly unaware of this need to nominate a residence, then S222(5A) from the same act comes into play. It’s a bit wordy, but basically allows a late nomination, provided all but one of your residencies during the period had a negligible capital value (for example a house you rent where someone else has invested the capital ... like JRA!)
Please click here for a 'letter of late nomination' template you're free to use if you wish.
I receive an allowance as opposed to renting a property from HM Forces – does that count?
Yes it does. This is because HM Forces are giving you money for accommodation as opposed to the accommodation itself which, for the purposes of this, amounts to the same thing.
Other Information
You can only nominate one primary residence at a time.
If you are married / in a civil partnership, you and your partner can only nominate one primary residence between you.
Unless your rental income is less than £1000 per annum (that’s £1000 per person receiving the rental income), then you need to fill in a self-assessment to let HMRC know about it. The income must be in line with the ownership split in the deeds (or Statement of Trust if you have one drawn up).
Information is correct at the time of publishing. Money Bee is not a CGT expert and does not guarantee that you will be exempt from this or any tax.
You are advised to contact HMRC directly if you have any specific queries.
* £6000 for the 23/24 tax year, decreasing to £3000 for the 24/25 tax year