Where a property has been an individual’s principal private residence (PPR) at some time during the period of ownership, the last 36 months of ownership are always exempt in calculating capital gains tax.
Where more than one residence is held, it is possible to make an election to nominate a particular property as the PPR. Such an election can be varied back to another residence within a short period of time. This concept known as “flipping” ensures that by electing for PPR albeit for one week a particular property will also qualify for PPR exemption for the last 36 months of ownership. With effect from 6 April 2014, the period of final exemption will be reduced from 36 to 18 months.
PPR exemption is currently a hot topic with HMRC as evidenced by the number of recent cases. This change to the exemption, aimed at looking to reduce the effectiveness of property flipping is another example of the hardening attitude towards perceived avoidance using PPR. The main purpose of the final period of exemption was to provide an exempt period for those who were having difficulty in selling their property, for example the sale of the matrimonial home following divorce. The shortened period will not be welcomed by those finding themselves in that situation.
For more information or to discuss the proposed changes contact the TaxDesk on 0845 4900 509 and ask for Martin Mann.