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Newth Talks Tax: PPR and second property

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1st Dec 2008
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PPR and second property

An anonymous subscriber asked for confirmation that it was not possible to make an election for a second property to be the principal private residence where the taxpayer owned a holiday home which was lived in for two weeks and then let out to tenants. Also, what was the position where the second property was abroad?

Alan Webb confirmed that an overseas property is potentially eligible to PPR. A property used for two weeks only as a holiday home is unlikely to be eligible on quality of use basis. A holiday home let in the summer, but used as a weekend retreat at other times is more likely to qualify. The election must be made within two years of the second property becoming an eligible private residence.

David Evans wondered whether he should routinely advise clients to make an election within two years of purchase of an overseas property.

It is worth highlighting the somewhat complicated result of the legislation arising from one small part of the capital gains legislation at section 222(5)a),TCGA 1992. There is extensive commentary in the HMRC Capital Gains Manual at CG64485- CG64554.

First the property must, at one time, have been the taxpayer’s private residence. This is a matter of fact. In other words there have been two dwelling houses, each of which at one time or another has been the private residence.

Failing an election, and under self-assessment, the taxpayer will decide, on the facts which dwelling house had been the main residence and, on disposal, submit the appropriate capital gains computation (or not). It is then up to HMRC to challenge the position if necessary, based on the facts.

However, if the taxpayer makes a valid claim under section 222(5)a), this then becomes conclusive as to which property was the PPR from the date when the two properties were owned. The election must be in writing, signed by the taxpayer or taxpayers. It should be remembered that husband and wife may only have one PPR between them. Some debate concerned the operation of the two year time limit, but the decision in Griffin v Craig Harvey [1994] STC 54 confirmed the view of HMRC, although Extra Statutory Concession ESC D21 extends the time limit for making an election in some circumstances.

What makes the operation of an election very valuable is that there is a right to vary the election at any time, although it does not take effect more than two years before the date of the variation. For instance a variation of a previous election can be used to obtain the final 36 month PPR exemption on a property that has been sold. A new ‘election period’ begins every time there is a different combination of properties. It should also be noted that where two parties to a marriage each own a property prior to marriage and the properties are retained, then an election operates from the date of the marriage.

Newth Talks Tax Archive

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By AnonymousUser
01st Dec 2008 16:26

Might be worth a try on the holiday home
"A property used for 2 weeks only as a holiday home is unlikely to be eligible on quality of use basis." Where the holiday home is likely to be (or has been) owned for a long time and the 2 weeks are every year, those 2 weeks might add up to the property being one of the taxpayer's residences. So long as the loss of a week's relief on the actual main residence isn't significant, I'd be tempted to make a one week election (to get the final 36 months) and argue about it come the disposal.

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