Armed Forces and Capital Gains Tax: What You Should Know

Life in the armed forces typically involves frequent relocation. One year you're down south, then you're somewhere up north, and you may even end up halfway across the world. For those who own a home, it’s not uncommon to rent it out while posted elsewhere.

But this naturally raises questions. What happens when you sell that property? Will you have to pay Capital Gains Tax, and if so, how much?

This is where the concept of Private Residence Relief (PRR) and job-related accommodation becomes really important, and perhaps the most crucial part of it all is your intent to return to the property.

When You Move Out, Does Your Home Stop Being “Your Home”?

Not necessarily. HMRC recognises that people sometimes have to move out of their home for reasons beyond their control. Serving in the military is a prime example!

If you’re required to live in Service Family Accommodation (SFA) or Single Living Accommodation (SLA) because of your job, HMRC considers this job-related accommodation. This can allow your former home to still be treated as your main residence, even while you're not physically living in it. But this only applies if you genuinely intend to live in it.

That intent is key.

Why Intent Matters

Private Residence Relief is what normally protects people from paying Capital Gains Tax (CGT) when they sell their main home. Once you've moved out and started renting out the property, PRR would usually stop. However, if your job has forced you to move into job-related accommodation, PRR can continue for the entire period you’re away.

If you're living in job-related accommodation and still intend to live in your home, then you typically won't have to pay Capital Gains Tax when you sell.

But here’s the catch. This only applies as long as you plan to move back in. The moment that intention changes, for example, if you decide you'll never return and instead aim to sell the property or buy elsewhere, the relief can start to fall away. It’s not just about whether you physically return. It’s about whether you intended to.

This is where it pays to be careful with how you document your plans. If your long-term aim is to move back in, keep records that show this. That might be emails to a letting agent saying “we’re renting for now but plan to return in a few years”, or simply noting it in your own files.

Service Occupancy vs Tenancy

One subtle but important distinction HMRC makes is how your job-related accommodation is classified.

• Service occupancy (for example, living in SFA or SLA because it’s required by your role) is treated as a licence, not a residence in its own right. That means you don’t need to nominate your military accommodation as your main home, and your owned property can continue to qualify as your main residence if you intend to return there.

• Tenancy arrangements (for example, if you rent a property privately near your posting) are treated as a residence. In this case, you may need to make a nomination to HMRC to make sure the right property is treated as your main home. If you don’t, HMRC will look at the facts of your situation to decide which counts as your main residence.

This difference is crucial because it can affect whether or not you keep the full benefit of Private Residence Relief while you’re away.

Renting Out Your Property: What About the Tax?

While you're away and renting your home, any rental income must be declared to HMRC (equally by both owners unless a different split and election is made!). But when it comes to CGT, the rules are more favourable for military personnel.

If you’ve lived in the property before, and then had to move into job-related accommodation such as military housing, you could still benefit from PRR for the entire time you're away. Even if you're renting the property out, this can often mean no CGT is due at all when you eventually sell.

There’s also the “final period exemption”, where the last 9 months of ownership are always covered by PRR, even if you weren’t living there. This helps protect you from unexpected tax if you sell shortly after returning.

A Real-World Example

Imagine you bought a home in 2012 and lived in it for a few years before being posted away in 2017. You moved into SFA, rented out your property, and kept it that way while continuing your service.

If your plan was always to return, and you do eventually move back in or sell the home with that original intent intact, then HMRC may treat the entire period you were away as though the home was still your main residence. In this case, you may not have to pay any CGT at all, even though you rented it out for years.

However, if at some point, you decide never to move back in, or you buy a new home elsewhere and settle there instead, that intention to return may no longer hold. From that point onward, the property may start accruing CGT liability.

Final Thoughts: Keep It Clear, Keep It Honest

This section is long because it's important!

The Armed Forces community is in a unique position. The tax system does recognise the realities of military life and offers reliefs that can significantly reduce or even eliminate your Capital Gains Tax liability. That’s only fair when you’re required to move around so often! But these reliefs come with a responsibility. They rely on your honest intention to return to your property. If you’ve moved out due to a posting and you genuinely plan to move back in later, that’s entirely legitimate. You’re entitled to the protections available.

However, if you’ve moved out and know that you’re never going back, then claiming that you are just to access Private Residence Relief crosses a line. That’s not smart tax planning, it's fraud. And HMRC takes that very seriously.

It’s worth being clear on this. If you mislead HMRC about your intent, or try to bend the rules to avoid tax, you’re exposing yourself to investigations, penalties, and potential prosecution. HMRC has increasingly sophisticated ways of identifying discrepancies, and playing the system is not a risk worth taking.

So be honest with yourself, and with HMRC. If you intend to return, keep a record of that intent. If your situation changes and you no longer plan to go back, then adjust your expectations and tax planning accordingly and keep records of this and the date the intent changed. The reliefs are generous when used correctly, but the consequences of misuse can be costly and severe.

Need Help?

If you're unsure where you stand or are planning a move back into your property, it’s worth speaking to a tax expert, ideally one familiar with military life and property ownership (like us!). With the right planning, you can stay compliant and make the most of the reliefs available to you.