Under current rules, UK residents disposing of their UK home are able to claim Principal Private Residence Relief (PPR) which in the majority of cases will reduce the capital gain on the disposal of their UK home to nil.
Individuals with more than one home can elect which home is their main residence.
As part of the Government’s consultation on introducing Capital Gains Tax for non-UK residents disposing of UK residential property they have also reviewed PPR Relief. Their concern was that a non-UK resident with a residential property in the UK, which they used as their UK residence, could elect the UK property as their main residence. Therefore, they could obtain UK tax relief on the disposal of the UK property but would have no UK tax liability in respect of other dwellings around the world.
Two possible approaches were suggested;
- Remove the ability to elect a main residence, as a result of which the relief would be for the property which is demonstrably the person’s main home. This would be in line with how the relief works now when an election has not been made by an individual with two or more residences.
- Replace the ability to elect with a fixed rule that would identify the individual’s main residence, for example the residence in which the individual has spent the most time within a particular tax year.
Following the consultation period the government released their response on 27 November and have confirmed that they have designed a new rule which will restrict the circumstances when a non-UK resident can claim PPR. The new rule will also apply to UK-residents disposing of non UK property.
From April 2015 an individual will be able to claim PPR if:
- He is tax-resident in the same country in which the property is located; or
- He has spent at least 90 midnights in that property (or across all properties where the individual has multiple properties in a country in which they are not tax resident) in that tax year – the “90 day rule”.
For married couples and civil partnerships, occupation of a residence by one spouse or partner will be regarded as occupation by the other.
Further information and guidance, along with the draft legislation, will be issued by the Government in due course.
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