Private residence relief shelters gain on sale of residence from the capital gains tax, the property has been owner’s only/main residence.
Where a property has been an only or main residence at some point, the final period of ownership (currently 18 months but reducing to nine months from 6 April 2020) is also exempt from capital gains tax.
Look Out for One Residence
As the name suggests, the private residence relief is only available in respect of the main residence. People who have more than one home have ‘main residence’ at any given time.
However, as long as certain conditions are met
However, if certain conditions are met, the taxpayer is free to choose which property is classed as the ‘main’ residence for capital gains tax purposes – it does not have to be the one in which the owner spends the majority of his or her time.
Only One Main Residence Per Couple
A married couple who are in a civil partnership and are together can only have one main residence between them.
The Property Must Be a Residence
Properties, where people live in as a home, can be ‘main residence’. Property on rent can’t be the main residence while it rents out.
Making an Election
Where a person has only one residence, that residence is the only main residence. Work on a second residence. This works for a period of two years to nominate a residence. That’s the main residence for capital gains tax purposes.
Where residences are bought and sold, the clock starts again from the date on which the particular combination of residences changes.
The taxpayer then has another two years in which they’ll elect residence as the main residence. HMRC receives the election via writing.
The letter includes a full address of the property nominated as the main residence and all owners of the property sign it.
No Election Made
In the absence of an election, the main residence property will determine as a question of fact and will be the property in which the person lives in.
For example, Couple has a family home and holiday home, in the absence of an election, the family home will be the main residence.
Advantages of Flipping
There are a number of advantages to a property being the main residence, some of which are:
Some point in the period of ownership as not only is any gain while the property is the main residence exemption from capital gains tax. The final period of ownership is also exempt.
Property is let, occupying the property as the main residence at some point may open up the option of lettings relief. The availability of lettings relief is to be seriously cut down from April 2020.
Once an election takes place to nominate a property as a main residence, this can vary any number of times (‘flipping’). This can be very useful from a tax planning perspective, for example, occupying a property as the main residence after it has been let but before it is sold can shelter some of the gains.
Flipping properties and making use of the capital gains tax annual exempt amount to shelter any gain that falls into charge when the property is not the main residence can be beneficial in reducing the tax bill.
Additional note: TCGA 1992, s. 222.
