IF YOU’RE considering buying or have bought your own home it is wise to be mindful of the additional costs you could face.
Liz Hart* from finance and accountancy firm Money Bee takes a look at capital gains tax and the potential implications for military families…
What is capital gains tax (CGT)?
When you sell something for more money than you paid for it, this is a gain. This applies to selling a property you own that’s not your main home – known as a capital gain. HM Revenue & Customs (HMRC) is entitled to take some of that gain as tax because it is a form of income.
Remember: it is the gain that is taxed, not the whole sale price.
If you sell a property in the UK, will you need to pay CGT?
Most UK properties bought and sold are residential homes. If you buy a house, live in it and then sell it, you generally have no CGT to pay.
If at any point you lived somewhere else and chose to rent out the property, under normal circumstances you would be liable to pay CGT for the period it was rented.
What difference does being in the military make?
Postings are common in the Army and moving is not necessarily something you choose to do. If you own a property, you may decide to rent it out for the duration of the posting.
Living in military accommodation, classed as Job Related Accommodation (JRA) by HMRC, allows you to nominate the property you own to be your primary residence on the basis that it is your intention is to live in it, but you are unable to do so because of the demands of service.
Therefore, nominating your home as your primary residence means there’s no CGT to pay, even if you’re renting it out.
However, if you rent out your own home while living in service accommodation, you will still need to pay tax on the rental income as there are no Armed Forces exemptions for this.
Is there anything else I should know?
Your intentions are important. As long as a property is nominated as your primary residence, you should intend to move back into it as soon as your job allows.
However, if – for example – you buy a bedsit and live in it for two years before being posted several times over the next 20 years, during which time you meet a partner and have children, the intention to live in that property is likely to change. It is at this point that you should advise HMRC that you no longer nominate that property as your primary residence.
How do I nominate my property as my primary residence?
You do this in writing to HMRC and it should be done within two years of leaving the property to live in JRA. If HMRC subsequently advises that you are too late to nominate the property, or your calculations of CGT are incorrect as you have received rental income, it could be that the person dealing with your case is not familiar with JRA rules. If that happens you should respond requesting a technician review your circumstances.
*Liz Hart is not an HMRC representative and further specific advice should be sought before taking any action.