The rules on the election are relatively straightforward. Any home that has, at any time, been a main residence will be exempt from CGT for the last three years of ownership. If more than one home is owned, and the taxpayer does not tell HMRC in writing which of those is the main one, then HMRC will decide, based on the facts. Taxpayers with two or more homes should exercise their right to choose which is the main home, and to vary that choice so as to get the exemption (in part) on as many of their homes as possible.

Illustration: H and W have lived in a house since 1997. In June 2004 they bought a flat for occasional use. The house remains their main residence as a matter of fact. So, if no main residence selection was made by 31 May 2006 in respect of the flat, then only the house will get CGT exemption. If the house and flat were both sold in June 2007, the gain on the house only would be exempt. All the gain on the flat would be chargeable. But, if they were able to make an election for the flat to be their residence shortly before selling it, the entire gain on the flat would be exempt from tax as well (because the last three years of ownership of a main residence are always exempt). However, they could not make the election for the flat because the two-year time limit expired on 31 May 2006. The way for them to have got the best of both worlds would have been to make the election for the flat to be the main residence, and to do this within the two-year period (ie by 31 May 2006).

The point, of course, is that the main residence selection must be made within two years of the acquisition of the second property, failing which the taxpayer cannot choose which property is treated as the main residence (ie it will be decided on the facts).

Because of the potential importance of the two-year period, and the fact that so many clients are buying second homes, it would not be surprising to find a client – faced with an unexpected tax bill on selling – who decided to blame his lawyer for not having advised him of the importance of CGT elections at the time of purchase (ie in particular, the two-year rule). Accordingly, consider whether clients should, as a matter of routine, be advised about such elections. At the least, consider saying that ‘there may be an opportunity for you to make an election under s222 CGTA 1992, and you should take appropriate tax advice’ (although we would hope that our readers would give a more helpful and informative pointer). [2007] SJ 1278; also see the excellent Tottel’s Property Tax Planning (Philip Spencer; £95). © Practical Lawyer