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Capital Gains Manual

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HM Revenue & Customs
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Private residence relief: change in use: incorrect application of TCGA92 S224(2)

TCGA92/S224 (2)

G bought a house on 1 June 1996 for £70,000. It was left empty until 1 June 1999 when he began to use it as his only or main residence. He sold the house on 1 June 2013 for £500,000.

The computation which he submits is

EXEMPT GAIN   £
     
  Disposal proceeds 500,00
less Value at 1 June 1999 80,000
     
NON-EXEMPT GAIN   420,000
  Value at 1 June 1999 80,000
less cost 70,000
  CHARGEABLE GAIN 10,000

The justification given for this form of computation is that the increase in the value of the house took place when the house was being used as a residence. So TCGA92/S224(2) should be applied to wholly relieve this part of the gain.

THIS APPROACH IS WRONG for two reasons,

  • TCGA92/S224(2) does not apply to these circumstances.
  • Even if it did, TCGA92/S224(2) only adjusts the relief given by TCGA92/S223. It does not alter the method of computing the gain, see CG64760.

The correct method of computing the relief under TCGA92/S223(2) is -

  Disposal proceeds      £500,000
         
less Cost      (£70,000)
  Net gain      £430,000
  Private Residence Relief 14 years    
17 years x £430,000 (£354,118)      
    CHARGEABLE GAIN        £75,882