How to ‘flip’ like a pro

Money hot tips, by Alex Sheridan
“Flipping” a home may be at the core of the MPs’ expenses scandal, but remains a good tax wheeze for people who own more than one property. Owners of “pied à terre” flats or holiday-homes can “flip” the status of their second property to become their main home and avoid thousands in capital gains tax (CGT) when they come to sell. Couples who move in together while keeping former homes can also benefit.

How it works

Profits made on your main home have long been free of CGT. But a second property is also free of CGT for the last three years you own it if, at any point, it has been your main residence. This is the case even if you rent out the property before selling.

“Accidental landlords” who can’t or don’t want to sell, and couples who let former homes, are among those who can benefit from the “time to sell” rule.

However, the three-year tax exemption can also be claimed by others with second homes through “flipping”— designating a property as your main home only temporarily. Even people who have never lived in their second property can do this, say experts.

Within two years of buying a second property, owners must “elect” which is to be treated as their Principal Private Residence (PPR), simply by writing a letter to their tax inspector. It makes sense to start by nominating the property where you are most likely to make the biggest gain.

Crucially, however, making this election means the PPR status can then be flipped to a second property to also pick up the three-year exemption. This status change can be for as little as one day. Then, by switching it back to the first property, your main home also keeps its tax-free status.

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