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  • Katherine Bullock

No Place Like Home – Tax and the Main Residence – Here be dragons?

Last week I wrote about Principal Private Residence Relief (PPR) and the unforeseen circumstances that can arise where a person has two homes and they do not nominate one as their main residence. However, having said this was important to get right, it seemed like a short post about the process itself might be helpful. Whilst it’s not an overly complicated process, it is an important one with the potential to either save or cost a great deal of money, time and worry.

"...what can you do if you have missed the deadline for making an election?..."

First things first, how do you make a nomination for the purposes of PPR? Very simply, s.222(5) of the Taxation of Chargeable Gains Act, 1992 (TGCA 1992) requires that a notice be given in writing to an officer of the Board. This means that a written letter to HMRC making a declaration as to which residence is your ‘main residence’ for the purposes of PPR is required. According to HMRC’s guidance on the subject the letter must contain the address of the relevant property and be signed by the taxpayer and all the other owners of the property. The signature of an agent will not be sufficient. With regards to ‘when’, the nomination must be made within two years of a change in the combination of your homes, most typically being on the acquisition of a second home. The sooner this is done the better but there can be good reasons for holding back and making the nomination when the most strategic position is clear, provided the position is kept under review. A nomination, once made, can be varied by the same process at a later date to take best advantage of PPR in your specific circumstances.

Short of a few exceptions, once made HMRC cannot contest your selection of main residence. The property does not need to be factually the one that you occupy most often or consider or use as your main home. However, there are a few circumstances where a nomination might not successfully serve its purpose. Perhaps rather obviously, HMRC do need to receive the written notice. It is prudent to keep a copy and a record of its submission in case of dispute. In my experience failing to do this occurs more often that one might expect. Many years later professional advisers have changed, no-one is sure if the nomination has been made and there is an understandable nervousness about asking HMRC. A second and more challenging exception is that the residence nominated must actually be a residence. You cannot nominate an investment property or a property that you have never occupied as your home. Residing in one property whilst nominating a succession of properties that you develop or let and then sell will not mean they automatically qualify for PPR, even if you spend more than a few nights in each. And don’t forget that there are also now additional residency requirements for homes in a country where a taxpayer is non-resident. A do-it-yourself approach whilst possible is not therefore always the best policy.

On the bright side, opportunities may arise from the fact that a valid nomination of a main residence may be varied. When an election is varied, the ‘main residence’ status can be backdated up to two years and the last 9 months of the ownership period as a general rule always qualifies for relief. This allows an opportunity to double up on CGT-free gains by claiming the relief on two properties at the same time (known as “flipping”). The government reduced the final ownership period from 18 months to 9 months, on the basis that 18 months allowed too much of an opportunity to double up on CGT-free gains. Instead 9 months is apparently the perfect balance between sufficient time to sell your old property after moving out and the gratuitous obtaining of a tax advantage. It still appears to be roughly twice the time it takes to sell the average property pre Covid-19 and so the change should not disadvantage most taxpayers moving home. HMRC are familiar with ‘flipping’ properties, cover it in their manuals and generally accept it if done correctly. Nevertheless it is a matter on which professional help should be sought.

But what can you do if you have missed the deadline for making an election? Perhaps this is the first time you’ve ever heard of the process, despite having two homes for over a decade? You would not be alone! ESC D21 has been enacted as TCGA 1992 s.222(5A), giving statutory certainty to the understanding that a taxpayer can make an election as to which property is their main residence beyond the initial 2 year time limit, provided that one of the properties has little or no capital value and thus would almost certainly never attract any CGT in the first place. Unlike the old concession, there is no need to be unaware of the need to elect or to elect within a reasonable time of becoming aware.

If this does not apply to you, then the answer is often to change the combination of your homes and so trigger a new time limit. You could acquire or sell a residence. This may sound a little drastic but remember that you do not have to own the residence for it to qualify. A short-term lease of a residence that you then occupy as your home or the letting of one of your homes that you therefore cease to occupy (note not merely a license) may do the trick and start a fresh two-year time limit, allowing for a new nomination and a whole new panorama of tax planning opportunities. Happy house hunting!


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