Main Residence Election

A capital gain on the disposal of your main residence is exempt from Capital Gains Tax. If you are fortunate enough to have two or more residences, you can make an election to determine which of them is to be treated as your main residence for CGT purposes. Of course, you can make the election only in respect of a property which is in fact your residence – you can’t make it in respect of a property you don’t live in: but subject to that you can, as the legislation says “conclude that question” (i.e. the question which of two or more residences is to be deemed your main residence) by giving written notice to HMRC within the appropriate time limit. This has been the well understood law ever since CGT was introduced, approximately 50 years ago.

So to the case of Mrs P A Ellis, which was heard by the First Tier Tax Tribunal in December. HMRC agreed that Mrs Ellis had two homes: they acknowledged that she had made the statutory election to treat one of them as her main residence: but they sought to deny the effectiveness of the election on the basis that although the property in respect of which the election had been made was “a residence” of Mrs Ellis, it was not as a matter of fact her main residence. Mrs Ellis won the case, of course. HMRC should never have brought this case to court – as the Tribunal explained to HMRC’s representative, HMRC’s submission was “contrary to the plain meaning and effect of that statutory provision.” This is perhaps just another example of HMRC exceeding their powers and ignoring what the legislation actually says in its attempt to raise more tax

Whilst this case was straightforward, there are numerous complexities within the main residence relief for CGT (such as CGT arising if the property is not your main home for the whole period of owenrship, if the garden area is too large or if a main home is later rented out), so do call us for further advice in your situation.