Policy paper

Statement of Practice 14 (1980)

Published 14 November 1980

Finance Act 1980 introduced a new relief from Capital Gains Tax for owner occupiers who let living accommodation in their homes. The legislation has been consolidated as TCGA 1992 s 223(4). The purpose of this statement is to give to people who are (or are thinking of) letting the whole or a part of their homes an indication whether they are likely to be liable to any Capital Gains Tax when they dispose of them. Anyone who would like further information about the application to his own circumstances of the rules and practice described in this statement is advised to get in touch with their Tax Office which will be pleased to give further help.

Full exemption

1. Where the owner of a dwelling house has occupied the whole of it as his only or main residence throughout his period of ownership:

• since 6 April 1965 if he acquired it before then and disposed of it before 6 April 1988
• since 31 March 1982 if he acquired it before then and disposed of it on or after 6 April 1988

Any gain on disposal is entirely exempt from Capital Gains Tax.

Lodger living with the family

2. Where a lodger lives as a member of the owner’s family, sharing their living accommodation and taking meals with them, no part of the accommodation is treated as having ceased to be occupied as the owner’s main residence, and the exemption is not restricted at all.

The relief for lettings

3. The new relief will apply where the owner disposes, after 5 April 1980, of a dwelling house which has been his only or main residence during his period of ownership but which he has wholly or partly let as residential accommodation. That part of the gain which would previously have been taxable, ignoring the relief for lettings, will now be exempt from Capital Gains Tax up to the lower of:

• £40,000 for disposals on or after 19 March 1991
• the amount of the exemption attributable to their own occupation

The amount of the gain on the let part depends on 2 things:

• (a) how much has been let
• (b) the length of time during which it was let

For example, someone occupies the whole of his home (acquired after 6 April 1982) for 6 years out of a 10 year period of ownership. One-third of it is let throughout the other 4 years. The gain on the house as a whole is £30,000. Ignoring the relief for lettings, £26,000 would be exempt from Capital Gains Tax and £4,000 (1/3 × 4/10 × £30,000) would be chargeable.

Relief for lettings applies to the £4,000 (which is less than the 2 limits referred to above) so that the whole of the gain of £30,000 is now exempt.

When relief for lettings is available

4. Whether the let accommodation is part of the owner’s dwelling house or is itself a separate dwelling house depends on the facts of particular cases. The Commissioners for HM Revenue and Customs (HMRC) wish to make known, however, their view of the application of the relief to the common case where the owner of a house, which was previously occupied as his (or the family) home, lets part as a flat or set of rooms without structural alteration (or with only minor adaptations). For the purposes of relief for lettings the Commissioners for HMRC regard this as a letting of part of the owner’s dwelling house, whether or not the tenants have separate washing and cooking facilities. But the relief does not extend to property which, although it may be part of the same building, forms a dwelling house separate from that which is, or has been, the owner’s (for example, a fully self-contained flat with its own access from the road).

Notes

Finance Act 1980 referred to above is now TCGA 1992 s 223(4).

This statement is as it appears in HMRC’s Statements of Practice (March 2009).