PRIVATE RESIDENCE RELIEF

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We get many enquiries about Private Residence Relief as whilst at first glance it seems straightforward there are a few wrinkles to be aware of.

Our Capital Gains Tax handbook, Tolley’s, runs to some 1,700 tightly typed pages which gives some idea of the potential complexity of the subject.

There have been numerous tribunal and tax cases covering Private Residence Relief and so if you are in any way uncertain, please feel free to give us a call to discuss your circumstances.

Understanding Private Residence Relief

Private Residence Relief, also known as Principal Private Residence Relief, is a relief that can reduce the amount of CGT you pay when you sell (or ‘dispose of’) your home. In fact, it is one of the most significant tax reliefs available to an individual.

The reasoning behind the relief is that charging people a lump of tax as they move up, down and around the property ladder is unreasonable and a potential brake on the economy.

The fundamental principle is that if you occupy your property (dwelling-house in HMRC terminology) as your main home you should not have to pay tax on any gain in value, thus allowing you to sell and move to another property without financial penalties.

If you own two or more properties, then the one or ones that are not used as your main home will be subject to taxation. You may be able to nominate one or other home as your main residence to get the best possible tax position.

How Does it Work

Private Residence Relief applies to the time a property has been your main home. If you’ve lived in your property as your main home for the entire time you’ve owned it, you’ll get full PRR, meaning you won’t have to pay any CGT when you sell it.

This relief covers both the property itself and your ‘garden or grounds’ (up to 0.5 hectares). It’s important to know that bigger gardens or plots might still qualify, but you’d need to prove that the size of the land was appropriate to the property.

What If I Haven't Lived There the Whole Time?

Things get a bit more complicated if you haven’t lived in the property as your main home for the entire time you’ve owned it. In this case, you may still be entitled to partial Private Residence Relief for the time you lived there plus some additional periods even if you weren’t living there at the time.
These additional periods can include:
  • The last 9 months of ownership (even if you weren’t living there). This provision is to help owner occupiers who purchase another property and require time to sell their original home.
  • Any time you had to live away from your home in work related accommodation (for example a caretaker’s cottage or armed forces housing). This avoids disadvantaging those whose work requires them to live away from home.
  • Up to 4 years when you had to live elsewhere because of your job (But not in work related accommodation). This could be because of commuting distances, times on standby or other job-related conditions.
  • Any period of up to 3 years for any reason (or periods of absence which together did not exceed 3 years). An example may be absence whilst abroad traveling.

There are a range of considerations regarding the above and sometimes it will be necessary to reoccupy your home in order to qualify. What will be allowable is highly dependent upon your specific circumstances. There are further periods of absence that may qualify for relief. Please contact us for details.

Calculating Private Residence Relief

Determine Eligibility: PRR applies only if the property sold was your main residence at some point. A property can be considered as a main residence if it was the primary place of living for you and your family.

Calculate the Total Period of Ownership: This is the total number of years or months you owned the property.

Calculate the Period(s) of Qualifying Residence: This includes the time the property was your main residence plus the last 9 months of ownership, which qualify automatically, regardless of the property’s use during this period. Add any other relevant periods (See above)

Calculate the Proportion of Private Residence Relief: This is done by dividing the Period of Qualifying Residence by the Total Period of Ownership. This proportion is then applied to the total gain to determine the amount of relief.

Apply PRR to the Total Gain: Multiply the Total Gain by the Proportion of Private Residence Relief to calculate the amount of gain that is exempt from CGT.

Husband and Wife or Civil Partnerships

A couple may only have one main residence between them for the purposes of Private Residence Relief, irrespective of their living arrangements. Where couples own more than one property it may be necessary to nominate one as the Main Residence. This can be achieved by writing to HMRC. If no notification is made HMRC will establish which property is the main home by reference to the facts.

Divorce

There are a range of specific provisions regarding relief in respect of separation and divorce. Please contact us for details.

Absence Due To Care or Disability

If you (or your Spouse) are absent from your home due to disability or long-term care the final 36 months of ownership will qualify for Private Residence Relief.

Lettings Relief

Previously, if you let out part or all of your main home, you might have qualified for Lettings Relief, which could further reduce your CGT bill. However, as of April 2020, Lettings Relief is only available to those who share occupancy with their tenant, essentially meaning you must be living in the property at the same time as your tenant.

The Relevant Legislation

The regulations around Private Residence Relief are a part of The Taxation of Chargeable Gains Act 1992. The important provisions can be found at Section 222 (8) A and Section 223. These are direct links to the Government Legislation:

For work related accommodation: https://www.legislation.gov.uk/ukpga/1992/12/section/222

For other periods of absence: https://www.legislation.gov.uk/ukpga/1992/12/section/223

HMRC Guidance

HMRC publishes internal guidance for staff and external guidance for Taxpayers in the form of a Manual which interprets the provisions of The Taxation of Chargeable Gains Act 1992. It also gives consideration to case law and tribunal precedent.

The main manual can be found here: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual

Private Residence Relief guidance can be found at CG64200C here: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64200c

Caveat

The above is intended as guidance and must not be regarded as advice. Whilst every endeavour is taken to ensure that content is accurate and up to date Tax Bee Ltd take no responsibility for actions taken as a result of the information we have provided.

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What our customers say

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2. April, 2024
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5. March, 2024
Having sold a UK residential property I had owned for 18 years I was facing a potentially significant CGT liability. Although the HMRC calculator appeared pretty straightforward I decided to approach an expert and fortunately found James just in time. I found his willingness to provide no obligation up-front advice over the phone very welcome and decided to appoint Tax Bees for peace of mind with the added bonus that his very reasonable fee might be saved when he got into the detail of my case. I certainly pays to spend some time putting together all the facts; as a result it proved very fruitful to invest in James when he significantly reduced my expected liability by many thousands compared to the HMRC online calculator. Lesson learnt - its never as simple as it first appears and not all the rules are entirely transparent!
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