Second home flipping not just for MPs
Tax breaks on flipping properties are not only for MPs.
James Cowper accountants have today said the tax breaks used by MPs are "not exclusive to MPs and can be exploited by anyone who has a second home and the means to fund relatively short-term property gains".
The firm have pointed out that the tax-free income generated by 'flipping' relies on a tax law, which was first introduced in the 1980s to help those struggling to find work to move home for employment opportunities.
Therefore any change brought in following the controversy at Westminster could disadvantage those the law was designed to aid.
Sharon Bedford, a partner and tax expert at James Cowper, said: "It has long been a premise of the UK tax system that an individual is allowed to buy and sell his or her home free of capital gains tax; gains are generated tax free to allow movement up the property ladder and the accumulation of equity.
"For those with two homes, an individual can elect which home is their main residence in order to attract tax free status."
She added during the recession of the early 80s, when Norman Tebbit suggested the unemployed may want to 'get on their bike' and look for work, rules were changed to encourage migration from depressed areas of the UK to more prosperous regions.
"Those who did have to move to secure a job often faced another problem. The depressed housing markets in some areas of the country meant they could not sell their home for a considerable time and may have been faced with short term letting," Ms Bedford said.
"It would have been a double whammy if this letting meant they also lost their tax free status, hence the 'time to sell' rules. The last three years of any period of ownership of a residence should qualify for tax-free status."
Ms Bedford explained how some MPs managed to take advantage of flipping - beyond the gains from expenses.
An MP, within two years of acquiring the London flat, elects that the family home in the country is their main residence, hence maintaining its tax free status.
Before three years of ownership the flat is sold. An election can be made however to 'flip' the tax-free relief to the flat, say a week before sale.
A week later it is 'flipped' back to the country home. Although the flat has only been the main residence for one week, the 'time to sell' rules kick in and the whole period of ownership of the flat acquires tax-free status.
The country home does lose relief for one week, but this is likely to be insignificant in a long period of ownership, she explained.
Ms Bedford added: "Of course much of the current controversy arises because some MPs are arguably doubly advantaged. Not only have they benefitted from the tax free gains, but the purchase or refurbishment of the London home has been funded by the taxpayer."
She went on to call on the government not to make knee-jerk reactions over flipping rules.
"Now that 'flipping' has made the headlines it is difficult to see how a government which constantly calls for a fair and equal tax system can allow this to continue," she said.
"We would hope that there is not a panic reaction to the headlines and that any changes to the tax law are well thought through."
Ms Bedford explained amending the three-year 'time to sell' rule would stop the tax breaks from the 'flipping' of second homes but would seriously disadvantage those who in the current downturn really do have to get on their bike and in the current housing market are unable to find a buyer for their home.
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