Chartered Accountants and Professional Business Advisers

Main residence CGT exemption

In most cases, if you make a gain on the disposal of your main residence, it's exempt from capital gains tax (any loss is not allowable as a deduction from other gains). People who own more than one home may either accept which is the main residence as a matter of fact or elect which one is to be treated as such. This coined the term 'flipping' - choosing the home with the larger gain or the one that will be the first to be sold, but also taking maximum advantage of the special rule relating to the final period of ownership. This rule treats the last 18 months of the period of ownership of a property (36 months in certain circumstances) that has been the main residence at some point, as occupied as the main residence in this final period even if it coincides with ownership of another property in relation to which the exemption had been claimed. It effectively allows an individual to have two main residences qualifying for the exemption for this period.

As a result of extending capital gains tax to non-residents' gains on UK residential property, changes to the main residence exemption have been made. For a property to be treated as a main residence in a tax year, the claimant musty occupy it (or other residences in the same territory) for at least 90 days in that tax year (or proportionately fewer if it is owned for only a part tax year).

Note that a rented flat can be a main residence. Someone who owns a weekend country cottage but has more connection with a rented London flat should elect for the cottage to be treated as their main residence, as they can't make a capital gain on the flat as they don't own it. Without the election a gain on selling the cottage would be taxable.

Specific advice should be obtained before taking action, or refraining from taking action, on the basis of this information.

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