Capital Gains Tax 'only or main residence' exemption is an important and valuable tax relief. The election as to which residence is the taxpayer's main residence can be very useful, but can anything be done if the normal two-year time limit for making the election is exceeded?
 Mark McLaughlin
Probably the most popular topic discussed on the TaxationWeb Forum has been the Capital Gains Tax (CGT) relief relating to an individual's only or main residence. For the record, the legislation is in the Taxation of Chargeable Gains Act 1992, at sections 222 to 226B. There are also various 'Extra-Statutory Concessions' from HM Revenue & Customs. It is perhaps indicative of the importance (and perhaps deceptive complexity) of this CGT relief that there has been numerous tax cases over the years on the availability of the relief in various circumstances. With the advent of the 'property boom' in the UK, many taxpayers are acquiring second homes. These may be holiday homes, or perhaps the individual is forced to live at another property during the week because of work commitments. The CGT rules state that an individual can only have one main residence at one time for the purposes of the relief. However, if two (or more) properties are being used as a residence, there is a 'window' of opportunity (excuse the pun!) to make a tax election for one of the properties to be treated as the main residence. As the following query indicates, there is a two year time limit for making the election. Query from TaxationWeb visitor ('mikeben')We purchased a second house as a holiday home for our own use 5 years ago but for reasons of ignorance failed to make a PPR declaration within the 2 year period of acquisition. No immediate plans to sell but without the 3 year exemption looking at a sizeable CGT bill when we eventually do so. If we rent the 2nd house for a period (say 6 months) when it returns to us can I make a fresh declaration for the 2nd house to be our PPR please - and thus gain the 36 month excemption period back? Any suggestions of alternative strategies welcome. Many thanks. Editor’s CommentsWhether a property is an individual's 'residence' is primarily a question of fact. Some taxpayers fail to appreciate that an election is only valid if two or more properties are used as their residence. It can also be overlooked that a fresh opportunity to make an election can arise when a different combination of residences are held. This would appear to be the basis of the query by 'mikeben'. Forum responses included those reproduced below.'Peter D' commented:http://www.taxationweb.co.uk/forum/discuss.php?id=18349 and search on 'nomination' and 'election'. Lee Young commented:The quick answer to your question is yes you can. Peter D commented:HMRC http://www.hmrc.gov.uk/manuals/cg4manual/CG64427.htm
Defines a residence as a place that is habitually lived in as your home. So when the tentant leaves you will trigger the 2 year window but beware. a 6 month tenant will be question by the CG avoidance team 12 months probable would not and you will have to move in Lock, Stock, and Barrel to make it habitually lived in. Due to the uncertainly here and the cost involved to you I would get it in writing from HMRC. A case failed recently because the owner moved in when the property was already up for sale and PPR nomination was denied and another one failed becuase the owner moved back into their original house that had not been rented out or sold. Be careful seek well versed fee paying professional advice. 'maths' commented:Not sure I agree with Peter D. As you have lived in both properties from time to time then the two year election period basically commenced when you purchased the holiday home. I do not agree the two year period commences after the proposed new letting. As a consequence for any period the PPR will be determined by the facts not election. What are you suggesting Lee? 'mikeben' responded:Many thanks for your help and advice. Seems use of PPR is not as clear cut as expected and there may not deliver benefits in relying on that, even if an election had been made in the right time. Think we need to think of alternate strategies such as longer letting and thus be in a position to claim the £40k 'letting relief',which would be enough to offset the gain. Your advice is good - make certain we're taking the right route by involving experts and specific communication with HMRC. Further inputs to this tread most welcome & thanks again for the quick responses. Mike 'cta' commented:Not sure of tax at stake but purchase/lease of a new residence may re-trigger the two year clock. If you don't rent the current property you won't get the £40k (maybe restricted) relief. Lee Young commented:I had always understood that at the end of a tenancy this presented a fresh opportunity for an election on the basis (assuming these are the facts) that a taxpayer has two properties available to him once again. Many have posted as such on this forum. 'maths' commented:I think the view you express Lee (and that of others) arises out of an interpretation following the case of Griffin v Craig-Harvey which I must confess I do not know if it is accepted by HMRC? As you say, once one of two residences is let out (presumably must be let on an exclusive tenancy) then for the period of the letting it is arguable that the taxpayer only possesses one residence and thus the original election ceases to be in point. If after the letting terminates the property reverts to being a residence again and thus two residences are again in point then the two year election period would arguably apply from this post letting date ie as you say a fresh opportunity to elect. Presumably nothing would be lost by so claiming. -------------------------------------------------------------------------------- To view this discussion online (including any possible updates), go to:
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