Capital gains tax exemption can only be claimed on one of your private residences. Currently, if you own more than one property and occupy both as private residences (e.g. a holiday home which you use at weekends and another property which is occupied during the week), you can make an election, within two years of purchasing the second property, to nominate one of the properties as your principal private residence to which the capital gains tax exemption applies. Where no election is made, HMRC determines which property will be exempt based on the facts. This election used to provide tax planning opportunities in order to minimise any future capital gains tax.
However, this election is being removed with effect from 6 April 2015. At present we do not know what will happen with regard to elections already in force at this date as this is still to be announced. For all properties after this date where at least there is no election the case will be decided on the facts.
So what facts will HMRC consider when deciding which property will be exempt from capital gains tax? There have been a handful of cases which have gone through the courts which provide us with some insight to this.
If you are in this position, you should have in mind which property you would like HMRC to treat as exempt and then consider the following points:
- Where do you have your post sent to?
- How much gas and electricity is used on each property?
- Which address is on your bank accounts etc?
- Which address do you register to vote?
- Which address is your car registered at?
While none of the above will determine the exempt residence in its own right, each one will help to form the overall picture.
For more information please contact Green & Co.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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