Can we benefit from ‘flipping’ homes?

Can married couples have different “principal private residences” and so avoid capital gains tax (CGT) on both properties? We are thinking of buying a flat in London for me to use during the week, while my wife lives in the country in our existing house. The house is held wholly in my name, but we were thinking of putting the flat in my wife’s name in the hope of saving tax. Would this do the job?

Ronnie Ludwig, partner in the private wealth team at accountants Saffery Champness, says that unfortunately only one principal private residence (PPR) is permitted per married couple or civil partnership.

However, the “flipping” that MPs have been criticised for could provide a useful solution for your situation – although this perk could be about to change for politicians and non-politicians alike.

To take advantage of the “flipping” rules – and so reduce your CGT liabilities – you should elect which property is to be treated as your PPR for CGT purposes within two years of buying the second home. This can be done simply by writing a letter to your tax inspector.

It makes sense to choose the property that is likely to show the greatest appreciation in value over the period of ownership (and if you do not elect within this two-year window, HM Revenue and Customs decides based upon the facts).

Crucially, by making the election inside the two-year “window”, you can then vary that election at any time in favour of any other property.

This “flipping” could be highly advantageous to your circumstances because the CGT rules say that where a house has “at any time” been your PPR, the gain relating to the last 36 months of ownership will be free of tax when selling that home.

So, say you elected for your house in the country to be your PPR, then changed that election to the flat in London – even for as little as one week – the gain relating to the
last three years of ownership of the flat would fall out of the CGT net when the property was sold.

In addition, by almost immediately switching your PPR election back to the country home, that house would continue to enjoy virtually full CGT exemption.

The gain relating to the one-week period where you elected in favour of the London flat should easily be covered by your annual CGT exemption.

Assuming that, in the future, the London property is more likely to be sold than your home in the country, it would also be worth putting the flat into joint names with your wife, as the taxable portion of the gain on sale could then be reduced by both your and her annual CGT exemptions.

There are very few tax disadvantages to being married, but in this case, unmarried couples would stand to be better off in CGT terms as both individuals have their own PPR exemption.