Most people know that the sale of their main residence is exempt from capital gains tax providing the property has been the only or main residence throughout the period of ownership, or throughout that period except for any part of the final 18 months.

What is less well known is that a former main residence which is let outside of the last 18 months of ownership can benefit from a letting relief which is capable of exempting capital gains of up to £40,000.

Taxpayers are likely to be aware of their ability to make a main residence nomination or election where they have more than one home, but the detailed provisions mean that the opportunity can either be overlooked or not used to its full advantage.

You can only have one main residence which qualifies for exemption at any one time; however, if you acquire a second home you can notify HM Revenue & Customs within two years which one of your homes is to be exempt from capital gains tax.

If no election is made HM Revenue & Customs will decide on the facts which one is the main residence and this may not necessarily be in a taxpayers favour.

As well as for people owning second homes, this issue often also crops up when couples marry or register as civil partners with each party already owning their own home. Married couples or civil partners living together can only have one qualifying residence between them and so they have the opportunity to jointly elect which one should be exempt. In this event the election needs to be made within two years of the marriage or registration. The property which is nominated will continue to benefit from the capital gains tax exemption.

Although the exemption for the other property will then cease, it will still benefit from the relief up to the date of the nomination as well as the all-important last 18 months of ownership which will be automatically exempt. A further benefit of making the election is that once made it can be varied at any time to notify a change of choice of exempt property.

There are potential capital gains tax planning opportunities around this ability to change the election, although care is needed and it should be remembered that it is not possible to nominate a property that has never used as a home.

Where the two-year deadline for making the nomination has expired it can sometimes still be possible to find a further opportunity to make the election – for example, a second property which is let for a period of time and then becomes available for use as a second home will in principle start a new two-year period to make the election. These opportunities can be triggered by a taxpayer themselves but considerable care is required in practice.

Capital gains tax private residence relief is a very valuable exemption in itself but it is also one of the most flexible because of the final 18 months of ownership rule, letting relief and the second property nomination. There have been a flurry of important cases in favour of HM Revenue & Customs recently where individuals have claimed private residence relief but have failed to persuade on the ‘quality’ of their occupation. The mix of these factors in deciding on a successful strategy can be quite complex … but also extremely worthwhile.