Tel: 0207 636 2430

Our News

31 August 2011

Ensure you are taking full advantage of private residence relief when a second home is involved.

The MP’s expenses scandal highlighted (perhaps unfairly) the Capital Gains Tax ‘flipping’ rule for private residence relief, which some MP’s had used perfectly legitimately. The HM Revenue guidance on this issue could be said to have even encouraged the practice as it spelled out the way to do it (see Capital Gains Tax Manual page 64512).


The “flipping” rule is of course based on the procedure which allows a taxpayer who acquires an second, third etc private residence to nominate which of their residences is to be treated as their principal private residence (PPR) for the purpose of the CGT exemption. Taxpayers can only have one residence qualifying as their PPR at any time (except that if a residence has qualified as the PPR at some point, the last 3 years of ownership qualify for exemption despite another residence also qualifying for the same period). If the taxpayer does not nominate which residence is to be the PPR within two years of acquiring a second, third etc residence, it becomes a question of fact which property has been occupied as the PPR. Obviously the tendency is to nominate the most valuable property as the PPR and a nomination should be made even where it is obvious which residence is the PPR and this is where ‘flipping’ comes into it. Once the taxpayer has nominated which property is the PPR he can vary that nomination by changing it to another residence to maximise relief. For example if a second holiday home were about to be sold, flipping the election from the PPR to the holiday home for a week will mean any gain for the last 3 years of ownership is exempt without significant loss of relief for the PPR. Some of the HM Revenue guidance has been updated but the underlying rules have not changed so the advice remains valid.

*Article for guidance only. Professional advice should be obtained to ensure that all circumstances are assessed in providing a complete answer.