IT is taken for granted that any gain on the sale of your home is exempt from tax.
For those who have just one home and have used it as such from the time of purchase to the time of sale that will always be the case.
Some people may have more than one home, for example, a weekend home and a weekday home near work or they may have a holiday home.
As an individual or a married couple can only have one home at a time then all the properties cannot all be exempt from tax as the private residence.
Where you have more than one home it is important that you make an election as to which one is your private residence.
Such an election can only be made within 24 months of acquiring a different number of residences.
So if you buy a holiday home you would need to make an election as to which of the homes is your private residence within 24 months of that acquisition.
The making of the election is important as without one the question of as to which house is your private residence will be determined as a matter of fact.
Clearly if you have a holiday home that you visit for six to eight weeks in a year and a private residence where you live for the rest of the time, it will always be the private residence that is determined to be the one that gets the exemption.
By making the election, you can opt for the holiday home to be your private residence.
That election might be for just one week. For example, you elect for the holiday home to be your private residence with effect from February 1, 2012, and then you make another election to change it back to your main home from February 8, 2012.
The result is that the holiday home is your private residence for just one week and your main home is your private residence throughout ownership apart from one week.
The effect of this on the main home is negligible and any gain should still be completely exempt as one week’s worth of the gain will be insignificant.
The important point for the second home is that it will then have been your private residence for one week and any property that has ever been your private residence automatically qualifies for exemption for the last three years of ownership.
That means if you owned a property for five years and you had made the election for it to be your private residence for tax purposes for one week, then three years out of five would be exempt. In other words, 60% of the gain on sale would be exempt from capital gains tax.
If you never made the election, then 100% of the gain would have been chargeable to tax on sale as your main home would have been treated as your private residence as a matter of fact.
The important point is that you only have 24 months from the date you acquire a different number of residences to make the election.
If you do not make it in that time period you will not be able to.
It might be possible to create another 24-month period by having a change in the number of residences.
That could even happen if you let one of the properties for a 12-month period because that would mean only one was then available for your use for that 12-month period.
At the end of the letting you would then again have a different number of residences.
Alternatively, you might buy a third property before selling one of the other two properties. Again this would bring about a new 24-month period.
As the relief has been used by MPs for a considerable period of time and despite the bad publicity continues to be used in this way, it is doubtful that this will be changed.
Make sure you do not miss out if it is appropriate to you.