Useful info on PPR, Doug, cheers! I wasn't actually aware of this stipulation, so could I please ask a couple more idiot questions (haven't looked at the IR leaflet you suggest, yet, but will do):
- what happens in a situation where a family inhabvit two homes for perfectly good reasons, e.g. avoiding medium-term disruption to schooling, job in a different region, etc. ?
- what exactly is the implication of PPR, i.e. what happens if someone/couple continues to own two properties ? looks likethey end up paying CGT, but how does it get worked out ?
Only one of the properties can be the couple's PPR at any one time, and they have two years from acquisition of the 2nd to elect which one they wish to be so treated.
If they choose for the first to remain the PPR, then obviously the second will get no relief at all (except taper) and when sold in due course the whole gain will be taxable. But if the first is sold first, then the 2nd will gain PPR status from that moment.
If they choose for the second to become the PPR from acquisition, then the first will lose its PPR status from that moment.
The way the CGT is worked out is that first the gain is calculated. This basically involves subtracting the gross acquisition costs (adjusted for pre-1998 inflation if relevant) from the net sale proceeds. Then PRR is deducted. PRR is calculated by multiplying the gain by the number of months for which the property enjoyed PPR status, and dividing by the total number of months of ownership.
This means that if all the months of ownership have PPR status then the PR relief is equal to the gain, and so none of the gain is chargeable.
However, the last 36 months always count as PPR (unless the property was never your PPR) even though they may not have actual PPR status. Accordingly there may be an advantage in electing to transfer PPR status to the 2nd property more or less straight away (if the intention is to sell the 1st one first and then to retain the 2nd), because that way the 2nd property has PPR status from the word go, while the 1st in effect enjoys "free" PRR entitlement for a further 3 years.
If you plan to keep both houses for 5 years, and then to sell the 1st, it may be best to delay transferring PPR status from 1st to 2nd for the maximum permitted 2 years, thus retaining full relief for the 1st and only losing 2 years' status from the 2nd.
The planning is not always easy, because the outcome depends on many factors not all of which will be known at the outset. Suppose you wish to keep the 2nd only temporarily. Then transferring status to it will avoid tax on its gain, but if the 1st is then retained long-term, then some (but not very much) of its in-due-course gain will become taxable as its non-status period is edged out of the
36-last-months window. Against that, there is the possibility that the 2nd might not show much gain anyway, if property prices move up and then down.
And lastly: The Bastards might change the rules! Likely or not, there have been rumours that PRR might be abolished altogether.
Thanks for the info, people. For some reason, these responses didn't show up in OE, only found them when i did a search on my posts, hence the ack. delay.
I'm using Google to post messages, rather than OE. When I reply to a post via the "Post a follow-up ..." hyperlink, a new message thread is created, not a response to the message I intended it to be. Or is that not what one does ?
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