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Principal Private Residence Relief - Potential changes to Elections

Many people will be familiar with Principal Private Residence Relief (PPRR) which, very broadly, exempts tax on gains made on the sale of a person's main home. Most of us will be aware that, from 6th April 2014, the relief for the final period of ownership (which may apply where someone has not lived in their main residence throughout the full period of ownership) has been reduced from 36 months to 18 months.

What has been far less reported is that we are in a period of consultation in respect of further changes to PPRR. Within a consultation document titled "Implementing a capital gains tax charge on non-residents", published on 28th March, is a section which details the governments considerations that could apply across the Capital Gains Tax (CGT) system, affecting UK residents as well as non-residents.

The consultation outlines that with the intent to charge CGT to non-residents on the disposal of residential properties, PPRR may be available in certain circumstances. However, there are concerns that the current election process (where an individual with more than one residence can elect which residence they would like to qualify for PPRR) may be open to abuse. To address the potential abuse current legislation in respect of PPRR elections will be reconsidered. Any changes in the legislation would apply to UK residents as well as non-residents.

The consultation outlines two options:

1. Removing the ability for a person to make an election. In this case, a "main" residence would be determined based on the evidence. In this scenario the items that are mentioned as evidence are where the persons spouse or family live, where they are on the electoral role, and where mail is sent.

2. Replacing the ability to make an election with a fixed rules that identifies a "main" residence. The suggestion made is that this could be based on a simple day-count basis, and depending on the test the evidence required could be different or additional.

Considering that many people may have more than one residence over a number of years, the practicalities of retaining such records would seem to be challenging - both in terms of knowledge of the requirements throughout the period of ownership, and potentially the volume of records. The consultation continues that, whilst there are no intentions to change other reliefs (such as for periods for absence), "consequential changes" may be required to ensure these reliefs continue to work as intended. This would seem to suggest that there will be no consultation on these "consequential changes", and as such an assumption that there is never any dispute over how these reliefs are intended to work.

For such a potentially significant change to legislation that can affect UK home-owning taxpayers, it seems remarkable that this matter is raised in the middle of a consultation in respect of non-residents.


Catherine Scott of Baines Jewitt LLP, a UK200Group tax panel member firm

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