Tax consequences
21/08/2008
Tax law in the UK permits a person (or a couple who are married or civil partners) to have only one home designated as their ‘Principal Private Residence’ (PPR).
The importance of this is that any gain on a PPR is exempt from Capital Gains Tax (CGT), except in very limited circumstances.
The gain on a second home, a property that is owned for letting purposes or one bought with a view to being sold at a profit, is subject to tax.
Because of the way the law works, many people think that if they need to move away from their home – say because they are temporarily transferred to another area or country – they will pay tax on the profit on the sale of their home if they retain it for a period and later sell it. This is not necessarily true as there are various exemptions which may apply.
Firstly, where a second residential property is bought, the purchaser may elect, within two years of the purchase of the second property, which property is to be treated as the PPR.
Secondly, CGT law exempts from tax any gain made on a property which has been a PPR in the last three years of ownership.
