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Main residence election

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My client owns Property A which she bought 10 years ago and lived in as her main residence. Two years ago, she went travelling while letting out Property A as a holiday let. In between holiday lets, she returned to Property A for periods of time. In June 2020 (due to the pandemic) she obtained long term tenants in Property A, and moved to Property B, in which she had inherited a 50% share around 15 years ago but had never previously lived in Property B. 

She has never made a main residence election on either property and has asked me to look at her CGT position with respect to both properties.

I assume that Property A will be considered my client's main residence for the majority of the period of ownership, as in the absence of a main residence election, she lived in Property A as her home and this could be easily supported by evidence. Would Property A stop being my client's main residence when she started using it as a holiday let, or could the main residence continue because she returned to the property to live in for short periods from time to time during that year, and did not have a home elsewhere?

Property A can no longer be a main residence once the long term let starts, and in any case my client was then living full time in Property B, and this could be supported by evidence in the absence of a main residence election.

Is there anything else I should be considering? Should my client now make a main residence election on Property B (with effect from June 2020) or is there no point because it is clearly her main home and this can be supported by evidence.

Thanks in advance if anyone spots anything I have missed in this scenario!

Replies (5)

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By Paul Crowley
10th Apr 2021 18:10

Election is only available if there are two properties being used at the same time and must be made within 2 years of second property becoming available.
As of now only one property

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Replying to Paul Crowley:
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By sparkler
11th Apr 2021 12:39

Thank you Paul. Capital Gains Manual CG64495 states that the date of a new "combination of residences" will be the date on which "the dwelling house is first used as a residence". So effectively my client could make an election backdated to June 2020 to elect for Property B to be her main residence, as she did still have both residences at the same time, albeit that tenants were about to move into Property A. This may be helpful if she wishes to vary the election at a later date (say if the tenants move out of Property A and she then wishes to elect for this to be her main residence again).

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64495

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By Tax Dragon
11th Apr 2021 08:34

1. Your OP refers to the rules as they were before 2015. You should read the current rules.

2. What are your client's intentions if and when the pandemic ends?

3. If an election can be made, it should be made.

4. Consider a protective election. If it turns out to be invalid, so what? If it turns out not to be invalid, see 3. (I suspect I may also be thinking of the pre-2015 rules when I say that. So apply 1. before 4.)

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Replying to Tax Dragon:
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By sparkler
11th Apr 2021 12:51

Thank you TaxDragon.

I did not intend to refer to the pre-2015 rules and am uncertain as to which bit of my post is incorrect. I have referred to the current rules in my research so far, and haven't had any clients who have needed to make such an election before. The changes to the rules in 2015 have restricted the circumstances in which an overseas residence can benefit from private residence relief, but this is not relevant to my client, who is a UK resident with two UK properties.

My client does not yet know her intentions when the pandemic ends (which hopefully will be when, rather than if!). She has made no further plans other than remaining in Property B for the time being, and continuing to let Property A.

As I've noted in my reply to Paul above, I believe an election can be made and backdated to June 2020, for Property B to be the main residence, as this is the date she started to use Property B as a main residence (according to CG64495, this is a date trigger for a new combination of residences, even though she already part-owned Property B for a number of years and had not made an election previously). This would be useful as she'd be able to vary the election at a later date if it was helpful to do so.

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Replying to sparkler:
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By Tax Dragon
12th Apr 2021 07:19

sparkler wrote:

This would be useful as she'd be able to vary the election at a later date if it was helpful to do so.

Hence my point 3. Of course, an election effectively lapses once one of the properties ceases to be used as a residence. But this could be deemed or actual residence. For the deeming rules, see s223(3). (FWIW, s223(7) changed in 2015 and I, rightly or wrongly, took your "and did not have a home elsewhere" in the OP to refer to pre-2015 ss7.)

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