The owner of more than one residence can elect which residence to treat as the main PPR. The property does not need to be the main residence in practice, although the owner must have actually lived in the property as a residence at some time. The nominated property can be in the UK or abroad but there can only be one nominated PPR at any one time.
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If the taxpayer fails to make an election HMRC will make the decision for them.
Example: John has a house in Surrey that he purchased in April 2000 for £250,000. In April 2005 he purchased a flat in Hong Kong for £100,000. He immediately elects for the flat to be his PPR.
He sells the flat in August 2013 for £500,000 and as the property has been his PPR throughout the period of ownership the gain is fully tax free.
In the same month he sells his Surrey house making a capital gain of £150,000. On this property he is allowed to claim PPR for the period from April 2000 to April 2005 plus PPR for the last 36 months of ownership.
Had John not ‘flipped’ his main residence he would not have been entitled to PPR on the sale of the Hong Kong property and the gain of £400,000 would have been taxable.