Muras Matters: Changes to Principal Private Residence Relief For Sale of Residential Property

Changes to Principal Private Residence Relief
For Sale of Residential Property

Currently, the sale of a main residence is free of Capital Gains Tax (“CGT”) where it has always been occupied as the owners Principal Private Residence (“PPR”). UK resident individuals with more than one residence can elect which property is their main residence for tax purposes, this is known as making a nomination or election. UK residential property sold by individuals who are resident for tax purposes in another country is free of UK CGT.

With effect from 6 April 2015 Capital Gains Tax is being extended to non-UK resident individuals disposing of UK residential property.

April 2015 Criteria

In order to prevent non-residents electing for their UK property to be their PPR, and potentially avoiding the tax, new legislation has been introduced which has a wide reaching impact for UK resident individuals who own more than one property.

From April 2015 any property owned by either a UK or non-UK resident can qualify for PPR relief where it meets one of the following criteria:

1. The property is located in the same country where the individual is ‘tax resident’, or
2. The individual spends at least 90 days per tax year in the property.

UK residents are still able to make nominations on overseas residences if they spend 90 days in the property each year. Non-UK residents making an election and relying on the 90 day test could find themselves liable to UK tax resident with potentially significant tax implications.

There are potential implications for UK residents where the 90 day test is not fulfilled as nominations made previously will not necessarily take effect.

If you have any queries on PPR nominations or Capital Gain Tax in general, please contact our Tax Director Jenny Marks.