PPR declaration 2 year time limit running out.

[philBG]

My wife and I bought a second home on 19th October 2009 ( property 2 ) in need of renovtion. We kept our original home ( property 1 ) and now split our time fairly equally between the two. We are concerned that we have not yet made a PPR declaration in favour of either property and the time limit is running out. Details of the properties are:
Property 1: bought 1984 for £15k, now worth approx £150k. Been our main residence for last 18 years, Owned without mortage by my wife solely.
Property 2: bought 2009 for £135k, now worth approx £150k. Have been improving over last 2 years and spending a lot of time there. Owned without mortgage Jointly with my wife. far more scope to increase value than property 1.

As both properties are in the same area can commute to work from either home. We have no immediate plans to sell either property but spending more and more time at property 2. Our Grandson still lives full time at property 1 but no rent charged.

My question is whether a PPR declaration in favour of either home is better than making no declaration at all.

[maths]

Did you mean last "28" not "18" years?

[Peter D]

Property 1 is your default or until you nominate otherwise. If you purchased it in 1984 and was your main residence for 18 years what else has it been used for in the other 9 years. Perhaps you wife lived there before you got married. So who looks after the Grandson when you are staying at property 2. Regards Peter

[philBG]

I do mean 18 years. From 1984 until 1993 my wife owned the propery but it was not her main residence, so there is already some tax liability on disposal of property 1.

[philBG]

I should have said that the grandson is adult so he looks after himself. But as long as he lives there we won't sell the property.

[Peter D]

Did she rent it out duirng that time. Regards Peter

[philBG]

Thanks Peter, She didn't rent it out during that time. Her parents lived there for a while but she did buy it with the intention of moving later. She was living elsewhere at the time and would be fair to say that property 1 was not her principle residence until 1993. I was asking the question because I thought that if we did make a declaration now, even if it was in favour of property 1 ( where my wife has possibly the biggest future tax liability ) we could vary that declaration later if required. thank you for your interest. Regards, Phil

[Incredulum]

I do not know what your plans are. The following plan followed exactly would enable you to sell both homes tax free.

1. Make an election in respect of new house with effect from 19 April 2010, and make it your permanent home. Aim to sell it in due course, tax free after maybe 2-3 years. Rent/keep old house as you wish.

2. Before you sell new house, your wife transfers old house to you.

3. Sell new house and move back into old house. Sell it tax free after maybe 2-3 years.

There are lots of things you can do to increase the tax bill.

[philBG]

Thanks for the advise incredulum. The spanner in the works is that we actually like spending time at property 2 and probably won't sell that quickly. I shouldn't let emotions get in the way of finances. Regards, Phil

[maths]

To make an election in favour of one of the properties requires that each property qualifies as a residence.

Assuming this to be the case any failure to make an election means HMRC make the determination on the facts which may not be the "best" position for you. Hence, an election should be lodged.

Based upon you comments I would be inclined to elect for P2, effective 19 October 2009 (date when, prima facie, you acquired two residences).

As and when any sale of either property is contemplated in the future it may be appropriate to change the election and/or re-organise the beneficial interests in either/both properties.