Pre-Budget Report 2009 prediction
Although I think the 2009 Pre-Budget Report will not contain any shockers ahead of the General Election next year, I do feel that the tax take has to be increased somehow and this could lead to 'tweaks'. My own 2009 Pre-Budget Report prediction could be a change to the tax rule on 'flipping second homes' to mitigate Capital Gains Tax (CGT). This rule was widely publicised in the press earlier this year, following the criticism of MPs and their expenses, but actually is available to everyone with two or more homes and not just MPs!
Broadly speaking, a main residence (sometimes referred to as a Principle Private Residence) is CGT-free on a disposal provided the property was not purchased for the sole reason of making a profit and the dwelling was an individual's only or main residence throughout the period of ownership. Exemption also extends to gardens and grounds of up to half an hectare. The last 36 months are also always exempt. All fine so far but what happens where you have two or more main residences? The rules allow you to secure at least the last 36 months of any gain tax-free by flipping your main residence election to your second home for 1 month. You lose the benefit of 1 month of relief on one property but gain 37 months relief on another. This can represent a real tax saving.
If another residence is acquired, you have an opportunity to make an election for which property you wish to be covered for which periods otherwise the Revenue will choose for you. The election must be made within two years of the date the new situation arose and if one house is replaced then a new two year period begins. You must actually reside in both properties, for some time at least, and any period of ownership not elected as the main residence will be chargeable to CGT. There are also rules relating to the fact that a husband and wife, or civil partnership, can only have one main residence between them.
Please get in touch if you would like to know more about whether you can take advantage of these rules.
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Helen Mckie is a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Helen you can call her on 01727 869141.
Date: 6th November, 2009
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