Most of us have secretly (or perhaps not so secretly!) enjoyed seeing a number of MPs squirm as they’ve had their expense claims scrutinised over the last few years. In a number of cases this will have included those MPs who have “flipped” their homes in order to avoid Capital Gains Tax on the sale of a second home. In truth, people who have two homes, whether as a holiday home or one based closer to their work, have always had the option to elect which of them should be treated as their main home for Capital Gains Tax purposes. Under current legislation, private residence relief (PRR) is available to everyone to ensure that you don’t have to pay Capital Gains Tax on the sale of the home in which you live. Where someone has more than one home they can elect which of them they would like to qualify for PRR, and this can be used as a legitimate piece of tax planning to help reduce or avoid the Capital Gains Tax which might otherwise be payable on the sale of a second home.
In the 2013 Autumn Statement, the Chancellor announced that Capital Gains Tax would be payable on gains made by non-residents disposing of UK property from April 2015. This would seem to be a perfectly reasonable thing to do and would bring the UK into line with most other countries. You may well be thinking what has this got to do with Capital Gains Tax on the sale of my second home? Well at first sight nothing at all, at least until March 2014 when HM Treasury and HM Revenue and Customs issued a consultation document on: “Implementing a capital gains tax charge on non-residents”. Buried away on page 15 of the 41 page document is a discussion about PRR and how non-residents don’t benefit form PRR except in pretty unusual circumstances (which seems logical to me as they don’t live here.) It seems that the Government wants to be “fair” to non-residents and have concluded that the best thing would be to consider withdrawing the option to “flip” properties for all UK residents! As a result PRR will be determined by a set of rules or facts and there would no longer be an option to choose which property is your main home for PRR purposes. This may cost tax payers with second homes additional tax when they sell those homes. Perhaps HM Revenue and Customs when they say “fair” really mean “a way of squeezing even more tax!” The consultation period closes on 20 June 2014 after which we’ll learn where the actual legislation will be heading.