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Part two of the Sage self assessment summit webinar examines potential issues accountants may find with principal private residence relief in the upcoming self assessment season.
Serialised in eight parts, the webinar features tax experts Rebecca Benneyworth and Paula Tallon outlining the main tax traps of the upcoming self assessment season, why they’re important and how to tackle them.
To watch the full Sage Self Assessment Summit webinar, including additional audience questions, click on this link and register absolutely free.
Topic 2 of 8: PPR
Something HMRC is looking into more this year is principal private residence relief or PPR. This gives an exemption to taxpayers when they sell their main residence. A lot of practitioners will have fielded questions such as ‘how long do I have to live in a property?’ and ‘can I claim PPR relief?’
You need to make sure that it is actually a main residence – something accountants will need to quiz their clients on. They must have acquired the property with the intention of making it a main residence and physically moved in to benefit from PPR.
This year look out for things like garden developments. If you have a disposal of a garden which is attached to a property and that property is being used as a main residence at that time, then the sale of the garden will qualify for PPR.
However, if the sales are the ‘wrong way’ round and the house is sold before the garden, the client won’t be entitled to PPR relief on the garden.
The Henke case – Henke v HMRC SpC 550 [2006] – is also something for practitioners to watch out for. If land is acquired then a property is built on it then you may have different acquisition dates, which can lead to a restriction in PPR.
PPR – key points
Total exemption from CGT on PPR gains subject to certain conditions (losses not allowable).
There are two separate exemptions: 1) for the dwelling house, and 2) for land up to the permitted area of 0.5 hectare.
Where residence used for other purposes during ownership period some of the gain may be taxable.
This does not apply to the garden - the test for exemption for the garden is a ‘snapshot’ of the use of that garden at the time the property is so.
However, if the land is acquired before the property the period of ownership test may give rise to a taxable gain - Henke v HMRC SpC 550 [2006]
Finally, make sure PPR elections are put in where a client has two or more residences available to them; you have a two-year period to do that. Something to watch out for is where you have existing elections in place. If there is a change in combination any old elections will fall away, so when you do the tax return make sure that any elections are revisited to see if you need to put in new ones, and also ensure if there is any doubts over the PPR available to your client the full disclosure is made on the white space of the tax return, because this could save a headache in the longer term.
You can view other topics covered in this series by visiting the content series page, or watch the full Sage Self Assessment Summit by registering here.
