Principal Private Residence Relief - make your second house a home

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27 February 2012

There have recently been several cases which have considered the application of Principal Private Residence Relief (“PPR”). This relief, which is set out in s.222 of the Taxation of Chargeable Gains Act 1992, enables individuals to sell their main residence without incurring any Capital Gains Tax (“CGT”) liability. However, whilst obtaining this relief is straightforward for those who have only one residence, the situation can be much more complex where the taxpayer seeking PPR has more than one home.

In order to obtain PPR on the disposal of a property, the taxpayer must demonstrate two aspects. First, he must show that he resides in that property and does not simply own it; and second, he must establish that the property is his main residence. Therefore, where an individual lives in more than one property, it can be difficult to satisfy HMRC that the particular property being sold is the taxpayer’s main residence.

However, whilst this may be the case, there are several steps that a taxpayer can take to improve the likelihood of obtaining PPR on their second home. A number of these actions are summarised below.

Elect the property as the main residence

Where a taxpayer resides in more than one property, it is open to that individual to elect which property should be treated as his main residence for CGT purposes. This nomination, which must be made to the Tax Office within two years of the taxpayer acquiring or disposing of another property, alerts HMRC to the individual’s intention to treat a particular residence as his main residence. Therefore, whilst it is still necessary for that individual to demonstrate that he resides at and does not simply own the elected property, this action is likely to assist the taxpayer in obtaining PPR on that property.

If PPR is claimed and no such election has been made, HMRC will consider all of the circumstances in determining whether the relief should apply. However, it should be noted that the taxpayer’s failure to elect the property will itself be an unfavourable consideration.

Furnish the property as a main residence

Clearly, it would be difficult for a taxpayer to maintain that a property is his principal residence if it is devoid of any appliances, furniture or personal possessions. Therefore, an individual seeking PPR on a second home should ensure the property is furnished appropriately.

Ensure official correspondence is sent to the property

If a property is a taxpayer’s main residence, it is likely that his bank statements, utility bills, DVLA documentation etc will be sent there. Therefore, if such official documentation is sent elsewhere, it tends to suggest that the individual is not using the property as his main residence.

Similarly, if an individual makes a credit card application (or similar) during his alleged period of residence, one would expect him to use the address of his main residence on the application. Therefore, if the address on the application is different to the address of the property on which PPR is sought, this is likely to raise suspicion.

Ensure utility usage is consistent with the property being used as a main residence

It has been held that an unusually low level of fuel usage (particularly during the winter months) is indicative of the fact that a taxpayer does not reside at the property. Therefore, an individual would be well advised to ensure that his utility usage is consistent with the notion that the property is being used as his main residence.

Update the council tax and electoral registers

Two indicators of residence that HMRC are likely to consider when considering a claim for PPR are the electoral register and the council tax register. Therefore, a taxpayer should always ensure that he is recorded on these registers as residing at the property on which he is seeking the relief.

Ensure residence of the property demonstrates the necessary features of residence

It is well established that in order to turn mere occupation into residence, there must be some degree of permanence, some degree of continuity or some expectation of continuity. Therefore, it follows that a taxpayer will not be able claim PPR in respect of a property which he has purchased with a view to selling in the near future.

Similarly, an individual will not be able to claim PPR if his occupation is merely temporary in nature. So, for example, if a taxpayer moved into a second home for several weeks whilst his other property was being renovated, this will not amount to residence of the second home.

This short article provides six simple actions that an individual can take to increase his chances of obtaining PPR on the disposal of a second home. All of these actions are simple in nature and do not require any great expenditure of money, time or effort. However, as can be witnessed from the string of recent decisions on this matter, these steps are often overlooked to the detriment of the taxpayer.

If you have any questions, please contact John Barnett on

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