I've received lots of queries about this and saved our military community thousands of pounds in unnecessary tax.
I’ve put together the most frequently asked questions here you.
What is Capital Gains Tax (CGT)?
When you sell something for more money than you paid for it, this is a gain. E.g. – if you buy something for £20000 and sell it for £30000, then you have made a £10000 gain.
This applies to selling a property you own – the gain is knows as a Capital Gain. And (of course) HMRC want to take some of that gain as tax – it is just a form of income after all.
Remember: it is the gain that is taxed, not the whole sale price. In this instance, it would be the £10000 that you would pay tax on and NOT the £30000.
There are different taxes on gains of different types of things like shares, jewelry, antiques, business assets if you’re a sole trader and property if it’s not your main home.
For these FAQs, we are looking specifically at Capital Gains on UK Property that is NOT your main home.
I have a property in the UK that I plan to sell – or have already sold – do I need to pay Capital Gains Tax?
The majority of UK properties bought and sold are residential homes. If you buy a house (lets call it House A), live in it and then sell it you generally have no tax to pay. This is because the House A was your Primary Residence for the duration of ownership.
If you at any point lived somewhere else and rented our House A, under normal circumstances you will be liable to pay Capital Gains Tax on the period you rented House A out.
This is because, for that time, you did not intend to live in House A & somewhere else was your Primary Residence.
What difference does being in the military make?
As you know, detachments & postings are common in the military – and it’s not necessarily something you choose to do. The military will (usually) offer to provide you with a place to live while you are on the detachment/posting. If you own a property, then you may not want to sell it and decide to rent it out instead.
Military accommodation (SFA / SSA / SSSA / SSFA) is known as Job Related Accommodation (JRA) in HMRC-speak.
Living in JRA allows you to nominate House A to be your Primary Residence.
This is because your intention is to live in it yourself, but you can’t because your job makes it too difficult due to distance or other job requirements.
Nominating your home as your Primary Residence means it is treated the same for CGT purposes as if you were living in it – even if you are renting it out. I.e. – no CGT to pay!
Does it matter if I was posted overseas for any of the time in question?
No – if you are posted overseas and still receiving your salary from HM Forces you are treated as a UK Resident. This means the CGT rules remain the same.
There may be different rules if you are receiving your salary from an overseas employer – that scenario is something you’d need to explore yourself.
What if I privately rented a property near to where I was posted that was not JRA?
E.g. You and your partner are not married or joined in a civil partnership. HM Forces posted you to a base too far away from House A to make commuting feasible.
You were only offered SLA and opted instead to rent a private home for yourself and your partner (but keep House A rent it out).
In this instance you would not be able to nominate the home you own as you are in privately rented accommodation. The Military did offer you JRA but you opted not to take it.
This means CGT would be due on the period that you rented out House A.
How do I work out the total amount of tax I need to pay?
If you have made a gain of more than your annual allowance, then you will need to pay. At the time of writing (24-25 tax year), the CGT allowance is £3000.
To work out the amount of Capital Gain that applies to you, follow these steps:
· Work out the gain (the sell price minus the buy price)
· Then take off certain allowance expenses (e.g. estate agents’ and solicitors’ fees and costs of improvement works, for example for an extension (normal maintenance costs, such as decorating, do not count)).
· Then deduct the annual allowance* from that and this leaves you with the amount you need to pay CGT on.
E.g.
A. Buy House A for £130000
B. Sell House A £200000
C. Agent fees of £2000 on purchase and £2500 on sale
D. Annual Allowance £3000
Gain = B-(A+C+D)
Or
Gain = 200000 – (130000+2000+2500+3000) = 62500
You then multiply the gain by a % depending on which tax band you are in. It is either 18% or 24%
Thankfully, HMRC have a handy calculator HERE
*Annual Allowance c an vary from year to year - check HERE for the year in question
And how do I work out the amount I have to pay if I have lived in JRA?
A. The length of time you owned the property. Be as precise as possible.
B. The length of time you lived in JRA or the property itself combined
C. A - B = this is the amount of time you’d need to pay CGT on
D. The Capital Gains Tax you need to pay
C x D = The Capital Gains tax payable
How do I report it?
You have 60 days from the date of sale to report and pay any CGT. Even if it works out that you have no tax to pay, you still need to report this fact.
You need to do this HERE
Is there anything else I should know about?
Yes. Your intentions.
As ever, there are ‘grey areas’ with this. The guidance focuses on the intention to live in the nominated Primary Residence.
This means that, for as long as that property is nominated as your Primary residence, you should realistically intend to move back to it as soon as your job allows you to.
For example, if you buy a bedsit & live in it for 2 years before being posted to several tours and several JRAs over the next 20 years, during which time you meet a partner and have several children … the intention to live in that bedsit would realistically no longer exist at some point during those 20 years. It is at this point that you should advise HMRC that you no longer nominate that property as your primary residence.
There is no hard and fast rule on this though, and how you would prove this intention to HMRC (or how they would disprove it) is another matter.
How do I nominate my property as my Primary Residence?
You need to do this in writing to HMRC – letter templates can be found HERE
You do need to do this within 2 years of leaving the property to live in JRA – but it is well known at HMRC that this isn’t always possible because people don’t know about the requirement. The link above therefore gives 2 letters – one for within the 2 years and one for after the 2 year deadline.
In the eventuality HMRC advise that either you are too late to nominate the property, or your own calculations of CGT are incorrect as you have received rental income, and so need to pay more, then it means that the person dealing with your nomination or CGT doesn’t know about the JRA rules. This is fairly common at HMRC as the JRA rule is fairly niche.
You can then either get back in touch with them and request that a technician look at the case, and/or send them the ‘Letter to ask for technician referral’
My partner and I each have a property can we nominate them both? One Each?
No. the assumption is that a couple who are married or joined in a civil partnership have the intention to live together in the same property if possible.
In this instance, you would need to decide which of the properties you wanted to treat as your primary residence and pay any CGT due on the other.
I’ve already reported and paid CGT – is it too late?
No. In this instance, you would need to re-calculate the amount you believe you need to pay & write to HMRC with a covering letter explaining what has happened. You can’t do this over the phone or on webchat.
You may need to evidence your calculations – which would mean providing proof of the JRA you lived in & the dates you lived there. You should be able to get this from the HR team(s) if you haven’t saved the posting notices and housing allocation paperwork.
The address to use is
Capital Gains Tax Queries
HM Revenue and Customs
BX9 1AS
United Kingdom
Use your National Insurance number as a reference.
Disclaimer
Money Bee is not an HMRC representative and this advice is not a substitute for HMRC guidance
All information was correct at the time of publishing
Please use this information in conjunction with your own research and direct HMRC liaison
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