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Does three year rule assist?
For the last 16 years my client has owned just one residential property. For the first eight years it was her only or main residence. From the ninth year onwards she has, by choice, been living elsewhere, in rented accommodation, and the house has been tenanted (until the last tenants moved out some months ago).
She has told me that she may market the house for sale soon, in its current empty state. Alternatively, she may instead give up her rented accommodation and make the house her only home again for some time. She has asked me for advice on her capital gains tax (CGT) liability but although I have researched the legislation and the HMRC manuals I am still not completely sure of the position.
Under TCGA 1992, s 223(1), the house will effectively be treated as her main residence for her final nine months of ownership, no matter what. I’m wondering, however, about the additional three-year period referred to in s 223(3)(a). If she moves back into the house and it is her only residence for, say, nine or ten months before she markets it for sale, I believe that she will have met the conditions in s 223(3A) and (3B). Will that mean that there is a period of three years, when the house was tenanted, during which it can be deemed to have been occupied by my client as her main residence, for CGT purposes? Or is s 223(3)(a) incapable of applying to periods when the house was tenanted?
On a related point, she has never made a nomination under s 222(5) to treat the house as her main residence. I believe that s 222(5A) would allow her to make one now. But is it even possible, in principle, to make a valid nomination in respect of a period when the house was tenanted? I had assumed not. I see, though, that the opening words of s 223(3) refer to s 222(5). So perhaps it would be possible to make a valid nomination in respect of three years of the tenanted period, by virtue of s 223(3)(a)?
Query 20,371 – Perplexed.
When does a gain for a property sale accrue?
My client is taxed on the remittance basis. He made a residential property gain in 2023 but the proceeds were remitted to the UK in 2024-25. I’m struggling to understand the tax rate which should be applied to the gain.
FA (No 2) 2024, s 6(1) suggests it should be taxed at 24% but s 6(3) seems to point in the opposite direction. I’ve always taken the view that gains ‘accrued’ in the year of remittance were taxed using the rates in force for the year of remittance. Any other view makes little sense. But s 6(3) clearly says that: ‘the amendments made by this section (being the 24% rate) have effect in relation to disposals made on or after 6 April 2024…’. Hence the confusion as to how a 24% rate can be applied to a pre-2024 disposal.
Sch 1 para 1 only changes the date the gain is deemed to accrue, it doesn’t appear to change the date of the disposal. And s 6(3) applies the new rate to disposals on or after 6 April 2024. Where does that leave things? Does a gain accrue at any date other than the date of disposal?
Can Taxation readers help?
Query 20,372 – Confused.
Should UK-based computer hardware seller charge VAT?
My client (a UK-based and VAT-registered sole trader) has bought some computer hardware (a new keyboard) online. I have suggested that the client obtains a VAT invoice. The supplier has responded with an invoice that says that the supply is outside the scope of VAT and that therefore no VAT has been charged on the supply. The supplier is UK-based and has a UK VAT registration number. My client does not remember stating that he was purchasing the keyboard for business purposes, although that was indeed his intention.
I have three questions. 1: Is the supplier correct not to charge VAT? 2: Should the reverse charge mechanism apply? 3. Assuming VAT was payable on the transaction, HMRC could presumably seek input tax from the supplier (one-sixth of the purchase price). On that basis, can my client claim one sixth of the purchase price as input tax (using the non-VAT invoice) as sufficient evidence of the supply or does HMRC get a potential windfall here? Query 20,373 – Qwerty.
Correct date for claiming input tax.
My question is simple: one of my clients purchased some machinery for £110,000 plus VAT and the invoice issued by the seller is very confusing because it records two separate dates:
- Time of supply – 29 June 2024
- Date of issue – 1 July 2024
As I understand it, the supplier must account for output tax according to the time of supply ie, by including it on their June 2024 return, assuming they complete returns on a calendar quarter basis. However, can my client claim input tax on their June return or not until the next one for the September quarter? My client does not use the cash accounting scheme. A colleague says that we must wait until September because the invoice was not held by the end of the June period, so a claim would be premature and subject to a potential timing penalty. Is this correct?
As a separate question, do readers know why the supplier would show separate dates?
Query 20,374– Double Date Donna.
Queries and replies
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