CIOT warns of hidden capital gains tax changes for UK residents

The Chartered Institute of Taxation (CIOT) has voiced concern over the proposed withdrawal of the principal residence election for all taxpayers.
 
The authority has responded to HM Revenue and Customs’ (HMRC) plans to extend capital gains tax (CGT) to non-residents in certain circumstances, and fears the proposal could have a significant impact on UK residents owning more than one property.
 
The proposed changes were originally mooted in the Chancellor’s Autumn Statement in 2013 as a means of improving fairness within the UK tax system.
 
Non-residents will be able to claim principal private residence (PPR) relief but to ensure that this relief does not undermine the proposals, the Government intends to withdraw the ability of any one with more than one residential property, including UK residents, to choose his or her main residence by election, leaving it to HMRC to determine based on ‘demonstrable’ evidence, which of the owner’s properties is his or her main home.
 
Stephen Coleclough, president of the CIOT, fears that many owners of multiple properties will be stung without realising as changes to how primary residency is decided could be hidden behind “an obscure consultation”.
 
“The withdrawal of the principle private residence election is a much wider issue, affecting many UK residents with two homes, not just non-UK residents with residential property here,” said Mr Coleclough.
 
"This is for a good reason – many people live in one place for work during the week and another during the weekends and holidays, often meaning the lines are blurred as to which is the person’s or their family’s primary residence. If the plans were to go ahead, then UK residents could be faced with CGT charges on their first or second properties, with no certainty as to which is which.
 
“If the Government wants to change the principal private residence election, or the rule generally, there should be a free standing consultation on that issue. There may be perfectly good reasons why they do want to change – we have recently seen evidence of MP’s using the rules to ‘flip’ their principal private residence repeatedly.
 
“Changes to how primary residency is decided should not be hidden behind an obscure consultation, aimed at bringing a narrow group of non-residents in to the charge. These points should be considered in an open and grown up manner, and we urge the Government to think again on this issue.”

Date published 20 May 2014 | Last updated 20 May 2014