Main Residence Relief (MRR)

Where a property has been the owner's only or main residence throughout the period of ownership, the availability of Main Residence Relief (MRR) will usually mean that no CGT will be payable when it is sold. If however a property is not occupied as a main residence throughout then any gain may be liable to CGT subject to any reliefs available.

Where the property has been used as the main residence for only part of the period of ownership, MRR is applied to any gain on a pro-rata basis. However if the property has at any point been the owner's main residence then the last three years of ownership is always treated as deemed occupation for MMR purposes.

Married couples and civil partners can only have one main residence between them, whereas prior to marriage it is possible for each individual to have their own main residence.

Making a valid MRR election

An election in writing must be made within two years of acquiring a second residence. A residence for these purposes includes a property occupied under a tenancy and is not restricted to properties actually owned. For a newly married couple with two residences an election is required within two years of marriage.

If an election is not made in this time period then the question of which property is the main residence will be decided on its facts.

It is possible to vary the election at any point in the future (and to backdate it by up to two years, even after the property has been sold!).

An MRR election in favour of a particular property may not be sensible where you expect to make a loss on disposal as the loss would not be allowable.

Transfers between spouses

If a property, which has been a main residence, is transferred to a spouse/civil partner then the transfer will be on a no gain/no loss basis and the recipient will inherit the donor's MRR history.

Further reliefs

There are other reliefs which may be available on the sale of a property which has at some point been occupied as the owner's residence and these will be covered in a future article. Professional advice should be taken when contemplating a sale or acquisition.

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We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2013. code: NTD146 exp: 31/03/14