Gary Heynes, head of private clients for Baker Tilly, replies: Main residence relief is available for individuals who own their property and occupy it as their main home (subject to restrictions for homes with large grounds), and so on this basis your sister-in-law should qualify for exemption from capital gains tax) on the proportion of gain for the period to January 2009.
In addition, main residence relief is extended for the last three years of ownership, even if the property is not occupied as the main home, so say that the property is sold in August 2013, then that would exempt the gain from September 2010 to August 2013.
In that situation, it leaves the period January 2009 to September 2010 exposed to CGT. While short periods of absence on holiday or in hospital would not affect the position, a longer stay in hospital or nursing home would leave the period exposed.
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Some reliefs are available where the property has been re-occupied but I am assuming these would not apply. Additionally, while some exemption is available for the period when the property was let, this period is already covered by the last three years of ownership rule and therefore leaves the period exposed.
This latter exemption may still be valid if the property is not sold for some time, such that some of the let period is then exposed to CGT.
So the final option, for covering the period exposed to CGT, is to make an election to HMRC that the property should be treated as the main home.
Normally, this should be made within two years of the move out of the property and into, say, the nursing home but under an HMRC concession (D21) this time limit can be extended and should apply in this situation. Some assistance from an adviser may be needed to make the election and review the relevant periods.