How To Lose Principal Private Residence Relief
There are a number of pitfalls ...
POSTED BY HELEN BEAUMONT ON 22/06/2018 @ 8:00AM
People may think that Principal Private Residence Relief is the best relief to offset against Capital Gains Tax, but there are a number of pitfalls that mean you can accidentally forfeit it ...
Principal Private Residence Relief can be offset against Capital Gains Tax but is easy to forfeit!
copyright: scyther5 / 123rf stock photo (licensee)
To recap what Principal Private Residence Relief is, if you are a resident of the United Kingdom and you make a gain when selling a property which has been your only or main residence for the entire time you've owned it, that gain is tax-free.
However, in the real world, there are always complications. Here are a few of the pitfalls you may not be aware of:
You are a property developer and bought the property to sell it on
As a developer, you may have moved into the property whilst you did it up, but if you bought it for that specific purpose, you may lose your relief as HMRC will see it as a commercial transaction.
HMRC don't seem to enforce this rule often but will if an individual is under investigation for some other reason. However, owning the property personally is less risky than if you own it through a property development company.
You're not really living there
There have been a couple of cases where the owner only lived there for a couple of weeks, or in fact, only claimed they lived there, so you can't have more than one property and try to claim the relief on the one you don't really live in.
You can only get Principal Private Residence Relief on one property, and that covers married couples too who, for obvious reasons, HMRC believe need to live together. If you're getting married, it may be worth one partner selling their property before the big day to ensure the relief applies to the sale.
You're working elsewhere for an extended period
Again, HMRC could refuse the relief if you've been out of the country for an extended period or even just working elsewhere in the United Kingdom. Any period of time longer than 3-years should trigger a warning bell, though they will look favourably if you lived in the property immediately before and after the absence.
So, remember, if you've lived in the property for the entire length of the ownership, you're more likely to get full Principal Private Residence Relief when you sell it, however, it is easy to lose it if any of the above bullet points apply to you.
"Would you like to know more?"
If you'd like to find out more about Principal Private Residence Relief and how it applies to the property you're thinking of selling, then do give me a call on 01908 774323 or click here to ping me an email and let's see how I can help you.
Until next time ...
If you're looking to work with an expert tax advisor with a wide range of tax experience, do visit www.essendontax.co.uk to find out more about me and discover how I can help!
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen’s specialist knowledge in tax planning and experience ensures every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.