HMRC guidance spells out how longstanding exemption written into tax law saves capital gains tax
Tax experts have warned that CGT private residence relief is likely to be curtailed after several members of parliament came under fire for "flipping" the designation of their main residence in order to maximise parliamentary expense allowances and save capital gains tax. A number of MPs offered to pay CGT that they were not liable for, even though they denied that they had done anything wrong. There has been fierce and widespread criticism of the practice, which the prime minister has suggested is "unacceptable". The recent revelations may prompt HMRC to reconsider its interpretation of the provisions in Taxation of Chargeable Gains Act 1992, "even before the law is changed", said Mark Lee, chairman of the Tax Advice Network. Mark McLaughlin, in an editorial column at TaxationWeb, said:
"Some people, it would seem, consider the tax rules which allow for CGT savings in respect of second homes to be overly generous and open to abuse. This point will almost certainly not be lost on HMRC. It would not surprise me to see claims for [PRR] coming under much closer scrutiny in future for those with second homes. Nor would it surprise me if the CGT relief rules are changed very soon to make them somewhat less generous."
Richard Curtis of Taxation magazine asked whether claiming the relief along with a related "lettings relief" amounted to tax avoidance, tax evasion or tax planning:
"Acceptable or unacceptable? And does it make any difference if you are a government minister, junior minister, shadow minister, employee of HMRC, professional adviser, television celebrity? ... Answers on a postcard please because I am now totally confused as to who may take advantage of such planning (or avoidance or evasion depending on your point of view) and when."
The law and HMRC guidance on this relief is explicit. Private residence relief, including the 36-month "final period exemption", was passed by Parliament long ago. But we can expect change, and soon.
The current issue of Tolley's Practical Tax newsletter (3 July) has more on this and other developments.
