Principal Private Residence Relief
Do you have more than one residence?
POSTED BY HELEN BEAUMONT ON 22/09/2017 @ 8:00AM
I have already discussed the Capital Gains Tax issues around selling a property that has been your main residence. So this week, I thought I'd explore the tax issues if you own more than one ...
If you live in more than one property, which one qualifies for Principal Private Residence Relief?
copyright: rufous / 123rf stock photo
In this scenario, a bit of planning can have a beneficial impact on the amount of CGT payable. The first thing to establish is whether or not a property is a residence which potentially qualifies for principal private residence (PPR) relief.
This is a property which you occupy as a home with some degree of permanence. Occupation does not have to be continual such that it is possible to have more than one qualifying residence available at any one time.
The residence does not have to be owned by the individual, so strictly a property you rent from a third party will also qualify as a residence if you use it as a home.
If a property is acquired with the intention of renovating it and selling it on quickly for a profit, HMRC may seek to deny PPR relief as there was no intention of using the property as a residence with a degree of permanence even if you moved into it for a while.
Also, living in a property that has previously been a buy-to-let while it is being sold, is unlikely to make that property a residence as there is no intention of staying long-term.
"But what if you have more than one home, such as a weekend cottage or a London pad?"
As mentioned above, it is possible to have more than one residence at a time. If you have 2 properties, HMRC will decide for you which is your main residence unless you tell them otherwise.
These rules present a tax planning opportunity as it is permissible to elect one to be your PPR and then change the election, such that the other one becomes your PPR. The general rule is that you can make an election to HMRC advising which residence is your PPR within 2 years of acquiring a second home.
Care needs to be taken where your property is overseas. Any property owned by a UK or non-UK resident will only be capable of qualifying for PPR relief if it is located in a territory in which you, your spouse or civil partner is resident or, you spend at least 90 days there in any tax year.
"So how do you elect which property is to be your Principal Private Residence?"
An election must be in writing, signed and sent to HMRC. Note that confirmation by HMRC of receipt of an election does not mean that it has been accepted by them that the election is valid. It is simply an acknowledgement of receipt, and the validity of any election will only be considered if tax is at stake.
Transfers between spouses and civil partners in most circumstances will have no impact. However, in certain circumstances, a transfer between spouses and civil partners can be beneficial.
A major consideration as to whether or not to elect one residence over another is the potential appreciation in value of each, the likely gain that will arise on each, and whether any property is likely to be sold in the foreseeable future.
"Would you like to know more?"
If you'd like to find out more about Principal Private Residence Relief or property tax in general, call me on 01908 774323 or click here to ping me an email and let's see how I can help you.
Until next time ...
More about Helen Beaumont ...
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 has specialist knowledge and experience in tax planning and uses 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.
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