Capital gains tax: changes to PPR relief take effect from April

Feature | 15 January 2014
Vol 158 no 02 14-01-14

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Where you own or occupy two or more dwelling houses, you can elect which is to be treated as your principal private residence

Restrictions on main residence relief for capital gains tax (CGT) were announced on 5 December 2013, with a draft Finance Bill clause published on 10 December. Generally known as principal private residence (PPR) relief, it is available if a dwelling house (or part, including a flat) has been an individual’s only or main residence at some time while owned (s222(1)(a) Taxation of Chargeable Gains Act 1992 (TCGA)). 
What is “residence” for the purpose of PPR relief? There’s no statutory test, but in Goodwin v Curtis [1998], the Court of Appeal said: “To qualify… a taxpayer must provide some evidence that his residence in the property showed some degree of permanence, some degree of continuity or some expectation of continuity.” Recent cases have shown HMRC attacking short-term ownership on this ground. 
Where a residence qualifies for PPR for only part of the ownership period, there will be a time apportionment of any capital gain, with the time qualifying for PPR as a proportion of the total ownership period. Since 1991, the last three years of ownership have been treated as exempt in any event, provided the dwelling qualified for PPR at some point (section 223(1) TCGA). 
This period – originally a year, then two years from 1980 – was increased to three at a time when the property market was stagnant like never before, with sky-high interest rates and huge negative equity making selling very hard. It shows the special rule’s purpose: allowing time for people to sell one property after moving to a new home. However, it opened up opportunities that have been used – or exploited, says HMRC
The draft clauses released on 10 December will be included in the Finance Bill 2014, which will probably be enacted in July 2014. However, changes will affect all contracts exchanged from 6 April 2014, so taking effect three months before the legislation is finalised. It is difficult, therefore, to be certain.
What’s proposed is the final period exemption being reduced to 18 months, but the three-year period staying the same if the individual or their spouse/civil partner (CP) is disabled or a long-term resident in a care home (at least three months). And it’s on the provision that neither individual nor their spouse/CP has “any other relevant right in relation to a private residence”, i.e. owning or holding any interest of their own, or being entitled to occupy a trust property. So, from April, you will have only 18 months to sell your old home unless you come within this provision.
Where you own or occupy two or more dwelling houses, including by a lease or tenancy but not simply occupying under a genuine mere licence, you can elect which is to be treated as your PPR. The time limit is two years from the date the combination of residences changed, either with a sale or a purchase or a changed in rented accommodation. If no election is made, HMRC determines your main residence based on facts.
For spouses/CPs living together who have only one PPR between them, any election must be made jointly. For trusts, a PPR claim may be made by trustees where the property is occupied by a beneficiary under the terms of the settlement – either a life interest or discretion being exercised on a discretionary trust. Any PPR election must be made by trustees and beneficiary jointly.


John Bunker is a partner and head of private client knowledge at Thomas Eggar 
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