Principle Private Residence “PPR” Elections: Your Options
What is Principle Private Residence “PPR” Relief?
If you sell a property which is your only or main residence or has been at some point during your period of ownership, Principle Private Residence (“PPR”) Relief will be available. This means that if a capital gain arises on the sale, PPR will exempt either all or part of the gain from Capital Gains Tax (“CGT”).
PPR elections for individuals with more than one residence
If you have more than one private residence, you can make an election to nominate one of your residences as your PPR.
This election must be made within two years of the date that you have a new combination of residences; for example, if you already have one residence and you purchase a second property on 19 December 2020 and start to use it as a residence on 1 January 2020, the deadline for making an election would be 31 December 2021. It is important to note here that the date that you start to use the additional property as a residence is the relevant date and not the date of purchase.
The effect of the election is that PPR will be available on the disposal of the elected property, thereby reducing or eliminating any CGT payable. To this end, individuals typically elect the residence which would produce the largest capital gain on disposal.
Important points to note
If a property is elected as your PPR, your occupation would need to meet the conditions for the property to actually be a residence according to the legislation. Otherwise, your election could be challenged by HMRC.
From recent case law, this relates to factors such as the quality of your occupation of the property (i.e. not just time spent there), your intentions for the property when it was purchased, the degree of permanence and utility bills.
In the case of Harte & Anor (2012), which was taken to the First-tier tribunal, a PPR election was made on a second property by two taxpayers and this was challenged by HMRC. The appeal was dismissed because the occupation of the elected property by the two taxpayers did not meet the conditions to qualify as a residence.
In this case, the property had been inherited on the death of the first taxpayer’s father and ownership was then transferred to joint ownership with the second taxpayer. The taxpayers never moved any of their possessions into the property, bills to the property were never addressed to them (they were only addressed to the occupier) and they never entertained guests in the property. The tribunal therefore determined that they only elected the property as their PPR in order to obtain PPR Relief.
If the two- year deadline for making the election is missed, you will no longer be able to elect a property as your PPR. In this case, your main residence for PPR purposes will be determined as a matter of fact, according to HMRC’s criteria and the factors mentioned above.
Specific rules for married couples
An unmarried couple can each have a property which qualifies for PPR relief. However, this privilege is lost on marriage. Where a husband and wife are living together, they can only have one qualifying PPR between them. If, at the date of marriage, both parties each own a residence and they continue to use both as residences, they can jointly nominate which of these should be treated as their main residence for PPR purposes. However, the two-year time limit also applies here from the date of the marriage.
There may also be other CGT planning options that a married couple could consider, such as the transfer of ownership.
If you are an individual with more than one residence and are considering making a PPR election, this is something that should be considered very carefully. We are experienced in providing advice about PPR elections, considering all the relevant factors – please contact us if you require assistance and we will be happy to discuss your circumstances.