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Main residence and tax

A client of ours called up to ask us for advice as he owned two properties – one in the country and the other in central London. He told us that his country property has been his home for many years and as he had purchased his London home only recently he wanted to make his London home his main residence (due to spending more time in London) but wanted to know about the tax consequences of doing this.

There is a Capital Gains Tax exemption on any capital gain that arises when you sell a property which has been your principal private residence.   In order to qualify for the full exemption you are required to have occupied the residence for the full period of ownership.

It is possible to nominate the London residence as a main residence but this can only be done by notifying HM Revenue and Customs in writing.  This nomination should be made within two years of the date the London residence was purchased.

In cases where the election is made more than two years after the purchase then HM Revenue and Customs would treat the property as a question of fact as to which property was the main residence.

If the London property is the principal residence then Capital Gains Tax would be due only when the second country property was sold.  However because the country property was a principal home for a period of time a proportion of the capital gain would be exempt from Capital Gains Tax and currently the last 18 months of ownership of it would be exempt.  The rules regarding Capital Gains Tax can be complicated so it is advisable to seek expert tax advice.