Radical proposal to change private residence relief

At present, it is possible to make an election, in certain circumstances, allowing owners of more than one residential property to choose which property is their main residence. In this way a measure of Private Residence Relief (PRR) can be achieved for the elected property. This process of swapping properties for tax purposes achieved notoriety during the MPs’ expenses scandal when certain MPs were found to have “flipped” between properties in London and their constituency to achieve capital gains tax advantages when they sold.

HMRC have recently published a consultation document entitled “Implementing a capital gains tax charge on non-residents”. Surprisingly, section 3 of the document proposes that the present PRR election is to be scrapped for UK home owners and replaced by less advantageous rules. Here’s what the report says:

“The government is considering two possible approaches, both of which involve changes to the process by which a person can benefit from PRR. The government may:

1. Remove the ability for a person to elect which residence is their main residence for PRR. This would mean that PRR would be limited to that property that is demonstrably the person’s main residence. The government envisages that this would build on the existing process that applies where an individual with two or more residences has not made an election. In these cases, the person’s main residence is determined by the balance of all the evidence including factors such as the address where the taxpayer’s spouse or family lives, mail is sent, and that is on the electoral roll.
2. Replace the ability to elect with a fixed rule that identifies a person’s main residence e.g. that in which the person has been present the most for any given tax year. Depending on the test that is devised this may mean that taxpayers have to keep different or additional records.”

It is likely that any changes to legislation will be effective from April 2015. This does give owners of more than one property a chance to consider their options in the interim period. Please contact us if you would like an update on the present capital gains tax opportunities.