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Business: Healys LLP

Get smart on capital gains tax

Principal Private Residence Relief (PPR), which is set out in section 222 of the Taxation of Chargeable Gains Act 1992, enables individuals to sell their main residence without incurring any Capital Gains Tax (CGT) on the capital gain made upon the sale of that residence.

PPR applies to freehold property or leasehold property, and subject to certain limitations includes outbuildings and surrounding garden or land falling within the limits defined as a ‘permitted area’.

If an individual resides in two or more houses at the same time as the main residences, he or she must elect one of them to be the main residence at any one time for PPR. He or she can nominate which residence is to be treated as the main residence at any time, or for any particular periods.

The nomination must be made within two years of the date that the residences in question are occupied.

If there is a change in one or more of those residences, a new two-year period begins from the date of that change.

If no nomination is made, it may be a question of facts and evidence as to which property is the main residence.

Spouses married to each other and those in a civil partnership living together can have only one main residence between them. If each has a separate residence, the couple must jointly nominate which of the two residences shall be the principle private residence. The two year deadline for the election begins as at the date of marriage or registration as civil partners.

If the spouses or partners separate, each will then have a separate election to make on each property, within two years of separation.

PPR may also be claimed on a property which is outside the UK, if the property is the main residence and is subject to UK capital gains tax. Non-domiciled persons resident in the UK should not make an election if he or she is taxed on the remittance basis, and the foreign gains are not taxable in the UK unless remitted.

In order to claim PPR, occupation of the principal residence must be with some degree of permanence. The rules contain certain periods of deemed residence for temporary absences for work, or during renovations. The final period of ownership is deemed to be a period of residence regardless of whether it is occupied, or whether another property is the principal private residence at the same time.

The final period used to be 36 months, but as from 6 April 2014, it has been reduced to 18 months.

There are circumstances where PPR may be claimed where the main residence is not owned by the claimant. In terms of section 225 of TCGA, if the property is owned by trustees and a beneficiary occupies the property as his or her sole or main residence under the terms of the trust, the property will be subject to the same relief if the trustees and the beneficiary make a joint election under s.222(5)(a) to that effect. The election must be made within two years of the beneficiary’s first occupation of the property. Advice should be sought in any situations of change.

Contact James Wolfson in the Private Client Department of Healys in Brighton: 01273 685888/