The dilemma with let properties is that you invest in them partly to realise a profit on sale, but that gain is taxed handsomely. The value of the house you live in also increases at a similar rate but the gain is protected from tax by what is known as the principal private residence (PPR) exemption.

The big advantage of the PPR exemption is that it not only covers the gain made on a property while you live in it but also the gain made in the last three years of ownership, whether or not you still live there. So if you can get a let property classified as your PPR at least three years’ worth of the gain will be exempt from tax.

If you occupy more than one property, perhaps a town flat and a country home, you can elect which should be treated as your PPR for tax purposes. You can only have one PPR at any one time and you must actually spend some of the year living in at least part of the property you elect to be your PPR. So a property that is fully let cannot be your PPR. The PPR election must be made within two years of acquiring the second property, but once made it can be changed at any time.

Living in a property for some time before it is let can help your tax position on sale, but the gain on your other home will be exposed to tax while it is not your main residence. Ask us to help you with the PPR election