PPR and CGT

[srbuck]

I read in Saturday's Telegraph that it is a good idea to nomintate your main home as your PPR within 2 years of buyng a second property. You can then change and nominate the second property beofre you sell it to gain the extra tax concessions.

Is it ok if this second property is simply an investment property that you rent out and never live in, or do you have to have also inhabited it at some point to prove that it is your PPR?

Many thanks.

[Tax Accountant]

I read in Saturday's Telegraph that it is a good idea to nomintate your main home as your PPR within 2 years of buyng a second property. You can then change and nominate the second property beofre you sell it to gain the extra tax concessions.

Is it ok if this second property is simply an investment property that you rent out and never live in, or do you have to have also inhabited it at some point to prove that it is your PPR?

Many thanks.

You need to to have more than one home ACTUALLY USED AS RESIDENCE before being able to nominate which one of these you wish to be treated as your MAIN home for Capital Gains Tax purposes.

Only one property can qualify at any one point in time. Married couples can have only one property as their main residence for CGT purposes between them.

You only need to nominate if you wish to elect in favour of the residence which is NOT your main home as a matter of fact.

Basically, main home is decided as a matter of fact and you do not need to nominate in this case. If there are two properties used as residences at the same time and there is some doubt as to which one could be construed as main residence, it is best to nominate one to put the matter beyond any doubt.

Therefore, if you have a city residence for working week and a country residence for your weekends and holiday use, you should nominate on the basis of whichever is better for you from a CGT point of view, ie on the basis of whichever one will give a bigger and certain CGT exemption on a sale. There is normally no point in nominating in favour of the one which is used as your main home as this is not likely to give you any CGT exposure on a future sale. Therefore, it is normally best to nominate in favour of the one which is likely to be let.

Remember that if any property has been your only or main home (by actual fact or by nomination), this will allow you to have the final 3 years of ownership exempted for CGT regardless of actual use to which it has been put during those final 3 years. Additionally, if it has also been let at anytime in your ownership, you will also qualify for Lettings Relief against any chargeable gains. This lettings relief could be as much as £40,000 per each joint owner, ie upto £80,000 for two joint owners.

Therefore, it is generally a good idea to ensure that investment properties have qualified as your MAIN residence for CGT purposes at sometime in your ownership if at all possible. If you have bought a new house, it is better to use it as your MAIN residence (by nomination if necessary) at the beginning before letting commences or in-between lettings.

Ramnik