Tax advice of the week: follow Blears and avoid CGT

Hazel Blears, the secretary of state for communities, hit the headlines this week. According to The Independent she sold her second home, a flat in Kennington, for £200,000, making a profit of £45,000.

Nothing wrong with that, but some commentators are unhappy that she paid no capital-gains tax (CGT) on the sale. Yet what she did is legal and you don't need to be an MP to benefit.

Mike Warburton, a tax expert at accountancy firm Grant Thornton, said that "I frequently use that in the tax planning for my clients". So what's the deal?

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Every UK taxpayer is entitled to a capital-gains tax exemption on one "principal private residence"(PPR), usually your main home. But if you own more than one property you can nominate any one as your PPR, even if it's a second or third one.

Since CGT on any profit only arises when a property is sold, by electing, say, a second home that you plan to get rid of as your PPR, you can avoid paying CGT. In fact, the exemption applies for up to three years after you move out, so you may claim it even if you're living in a different property at the time of sale.