Private Residence Relief Changes

Capital gains tax and residential dwellings

Planned private residence relief changes

The Government has announced plans to change the qualifying conditions for private residence relief (PRR) from 6 April 2015 affecting, amongst others, those with overseas holiday homes.

Background

The scope of capital gains tax (CGT) is being extended to gains accruing to non-UK tax resident persons on the disposal of interests in UK residential property. To ensure that the charge could not be escaped by merely claiming the benefit of PRR the rules regarding PRR are being changed.

PRR is given in respect of gains accruing on a disposal of a dwelling house which has been the person's only or main residence throughout the period of ownership. Where this has been the case for part of the period of ownership an appropriate fraction of the gain is chargeable, subject to final period relief (usually for the last 18 months of ownership); relief for certain types of absences and relief if let for part of the period of ownership.

Where a person has more than one residence, as an alternative to deciding based on the facts, notice can be given to HM Revenue & Customs (HMRC) as to which is to be their main residence for PRR purposes. This 'notification' would normally be at the expense of foregoing a qualifying PRR period on another property.

Without changes to the PRR notification rules most non-UK tax residents would be able to nominate their UK property for relief without exposing another property to CGT.

The proposed PRR change from 6 April 2015

The principal change is that a dwelling-house will not be considered occupied as a residence for PRR purposes for a tax year unless the person making the disposal is either:

tax resident in the country or territory in which it is located; or if not tax resident the person is present in the dwelling-house, or other qualifying unit in the same territory, for at least 90 midnights during the year (the '90-day' rule). Supplementary changes and definitions Tax resident in a non-UK territory (ie overseas territory) means an individual is liable to tax, by reason of their domicile or residence, on more than just income from sources in that territory or capital situated there. An individual will only be treated as tax resident in the overseas territory if tax resident in the overseas territory for half or more of the tax year. A day counts as a day spent by the individual in the dwelling-house, or qualifying unit, if the individual...