PPR is a relief against CGT which exempts gains on a taxpayers only or main residence, which means switching which property this directly applies to before you sell could help mitigate against the amount you will pay in tax.
find out how much your house is worth
Ronnie Ludwig, partner in the private wealth team at chartered accountants Saffery Champness believed that everyone should plan ahead to make sure they dont miss out on this opportunity, explaining how this could work.
Individuals can only have one PPR at any given time, and only one PPR is permitted per married couple or couple in a civil partnership. Where a home has at any time been your PPR, the gain on the sale pertaining to the last three years of ownership will drop out of account for CGT purposes.
find a mortgage adviser here
Anyone buying a second home has a window of two years from the date of acquisition, or the date at which the second property becomes habitable, to make an election selecting which home is to be treated as the PPR for CGT purposes. If no election is made within this time limit then the Revenue will decide which is PPR based on the facts.
Once an election has been lodged with the Revenue the legislation provides that the election may be varied at any time in favour of any other property, including those overseas, if it has been available to occupy, even for a short period, and that it was actually occupied by the owner.
Homeowners should also consider making the election in favour of the main home within two years of purchasing the second home. They should then vary the election at any time thereafter in favour of the second home for a short period, then vary it back again in favour of the main home. By doing this, the gain pertaining to the last 36 months of ownership drops out of account for CGT purposes when the second home is sold.
The Revenue quote an example in their own manuals of a home having been the PPR for only one single day and the relief for the last three years is still granted. However, there is no corresponding loss of three years of relief on the main home. The way the rules are applied means that if the election is varied in favour of the second home for, say, one week, the loss of exemption on the main home will only be for one week. Any gain pertaining to that short period should easily be covered by the normal CGT annual exemption, currently £9,200 for 2007/2008 (or £18,400 for a couple.)
find a best-buy mortgage
