Do you own more than one residential property?
If a property has been your main private residence and it has been rented out, there is a lettings exemption available which is the lower of an amount equal to the Principal Private Residence (PPR) exemption and £40,000. What does that mean in normal English? Let’s look at an example to find out. Sara and Ash jointly purchased a house in 2000 for £300,000. They lived in it for one year and rented it out from 2001 until 2009, when they sold the property for £450,000.
The gain is obviously £150,000, and the property has been owned for nine years. Year one it was actually the main private residence, the last three years always count as your main residence for PPR so four years are exempt (4/9 * £150,000 = £66,667). In addition, the lettings exemption is £40,000 (each owner) or the PPR exemption whichever is lower. In this case, £66,667 is lower than £80,000 which means that lettings relief is another £66,667!
So the gain: £150,000
Exempt period: (£66,667)
Lettings relief: (£66,667)
As this is jointly owned, both spouses will be able to use their annual exemption (£10,100 per person) towards it (assuming no other gain) Genius! If you have more than one property or are thinking of buying another property, it is worth speaking to your accountant as good planning is essential!
There are also possibilities where no letting has occurred. This is the infamous “flipping” beloved of MPs and their second home. All perfectly legal, but does require an election to be made.