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Capital Gains Tax (often abbreviated to CGT) is payable on the disposal of any chargeable asset which gives rise to a chargeable gain. This is broadly calculated by taking your disposal proceeds and subtracting from this the acquisition price and any other costs associated with the purchase and sale. This will then be subject to the annual exemption and subsequently chargeable to CGT at either 18% or 28%. Under current legislation, when a property is deemed to be the main residence for an individual, when they decide to sell that property, the last 36 months of ownership is always exempt in calculating the capital gains tax due. This is more commonly known as Principal Private Residence (PPR) Relief (you can read more about the old PPR rules here). However, under the most recent autumn 2013 statement, the government are aiming to address this. The reason why the PPR relief is beneficial to an individual is because if they own more than one residence at any one point in time, it is possible to make an election to HM Revenue and Customs (HMRC) within the specific time limits to nominate a particular property as their PPR. [Note: there are also many conditions that the taxpayer will be required to fulfill in order to claim the full PPR relief]. Although there are ways that a taxpayer can further cement his position as having a property as his/her main residence, there are no statutory tests that HMRC have for the purpose of PPR relief. Instead, there has been multiple cases and case law surround PPR relief which has helped determine if PPR relief should be granted or not. There tends to be the need for ‘permanence’, ‘intention’, ‘continuity’ and some ‘sense of expected continuity’. However, from April 2014, the rules relating to PPR relief and the last 36 months exemption will be changing. The major change will be that instead of 36 months, this will be reduced to the last 18 months of ownership that will be exempt from capital gains tax (this reduction will not apply and stay at 36 months if the spouse/civil partner is disabled or a long term resident in a care home). If you own more than one property, the rules relating to the elections and time limits will remain the same. If there are any questions you may have on the PPR relief and how this may affect you, then please do not hesitate to contact one of our specialist tax consultants who will be able to answer your questions. Feel free to call them on 020 8952 0140 or email [email protected].
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