I'm married and live in the UK. We have a second home in Switzerland. We stay there about 10 weeks a year, and for another 10 weeks per year we let the property out as a holiday home. The 2nd property was built and bought in 2005. At the time we did not make a PPR (Principal Private Residence) election . In the next few years we are thinking we might dispose of the Swiss property - is it too late to make a PPR election to mitigate CGT?
For the benefit of other readers, ordinarily if you were to sell a property (even overseas) any profit which you make is liable to Capital Gains Tax or CGT (currently at a rate of 18% for basic rate income tax payers - and 28% for higher rate income tax payers). However, you do not pay capital gains tax on the sale of your principal residence i.e. where you live – this is known as Private Residence Relief.
If you did then every time you moved home you’d be landed with a huge tax bill. Obviously, if you only own one house and live in it then this is your principal residence. But if someone has a second home or an investment property they can actually choose which is their principal residence and notify HMRC accordingly - which must be done within 2 years of switching residency. You have to actually live in your nominated principal residence to qualify for Private Residence Relief otherwise the tax man will be after you.
There are a string of rules laid out in this factsheet from HMRC. But for you:
- As you bought the property in Switzerland more than two years ago any PPR nomination can not be backdated to the purchase date of property.
- You could nominate the Swiss property as your primary residence now and as such the last 36 months of ownership would be free from UK capital gains tax.
- Also as you rented the property out you may be entitled to lettings relief on part of the gain (see the HMRC factsheet)
- Finally don't forget to use your respective annual Capital Gains Tax allowances if the property is jointly owned.
I hope that helps.