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Private Residence Relief – Tax Implications

Young Enterprise

If you own a second (or multiple) home(s), which often happens for example when two people meet and own their own properties and then marry, you can choose which home receives Capital Gains Tax private residence relief (PRR) to maximise relief.

For many years Capital Gains Tax rules relating to the sale or transfer of private homes stayed mostly unchanged. Recently, there have been significant changes to Private Residence Relief (PRR) . The key factors for maximising PRR where you and your spouse or civil partner own two more properties are this:

You can choose which of the 2 houses gets the tax relief. This impacts the amount of tax you pay as it will go by the value of that designated abode. You do only have two years from the date you had more than one qualifying property to notify HMRC of your choice. If you don’t choose, HMRC decides which property gets PRR for you – usually applying PRR to the property occupied by you the most. This is often not the best outcome for you.

If you give notice to HMRC within two years of marriage for example, you can elect which house gets PRR and often you might choose the one valued highest. Once a nomination for a property is made it can be varied as many times as you wish and for up to two years retrospectively.

If you don’t make a choice you’re stuck with HMRC’s decision unless or until you acquire another property to which PRR could apply. It’s therefore always better to make a choice and notify HMRC. That way if it begins to look like you made the wrong call you can change it. Further information can be found at Gov.uk.

Let’s Talk

For help with calculations on private residence relief (PPR), please contact our tax team, let’s talk.

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