HMRC are vigilant regarding all property transactions, and over time its breadth of property information has grown. HMRC now keeps accurate records of taxpayers who:
- own multiple properties;
- have sold a property in the tax year;
- or have not declared any gains on the sale of a property.
HMRC enquires extend to the application of the Principal Residence Relief (PRR). PRR applies where an individual sells their home and provides an exemption from capital gains tax (CGT). Taxpayers should keep accurate records to prove PRR applies, or risk being called (along with their advisers) to provide evidence that no capital gains tax is due. It is advised that a 'white space note' should be used to notify HMRC where PRR applies, and this should provide some protection against unexpected future penalties should HMRC disagree about the application of PRR.
Where the taxpayer owns multiple properties, making a main residence election is not sufficient. Evidence must be provided to support the claim that the sold property was the principal residence – this includes evidence of the taxpayer's personal circumstances i.e. proof of residence at address.
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