Principle Private Residence relief (“PPR”) is a long-standing tax relief where a person is exempt from capital gains tax when selling their main home . As with a few reliefs, there are a few conditions to be met.
Certain periods of absence can be treated as occupation. It is important to note that a period of absence can only be treated as a period of deemed occupation if it was both preceded and followed by a period of actual, physical occupation.
Therefore, if you purchase a property, live in it for a while and move out, never to return, only the period in which you resided at your main home will be allowed for the relief. If you own more than one residence you can choose which property you which to be your main residence.
If you own only one property, there are three periods of absence which will qualify:
- If you are abroad by reason of your employment. This period of absence can be treated as a period of deemed occupation and is for unlimited amount of time;
- If you are absent from your main residence due to working elsewhere. This period will qualify as deemed occupation and is limited to a maximum of 4 years; and
- Finally, any period of absence up to a maximum of three years will qualify as a period of deemed occupation.
Relief is given on all or part of their property provided that this is their main home, with all the land and the gardens (if the garden provides reasonable enjoyment of the property, otherwise half an hectare is covered by the relief) .
The last 9 months of ownership can be treated as deemed occupation, as long as the home was the taxpayer’s main residence at some point.
Lettings relief is available in addition to PPR relief. It is available where part of the house is the individual’s main residence and another part of the house is let out as residential accommodation. However from 6 April 2020, it is necessary that the individual and the tenant share occupation of the house, which severely restricts this relief.
As a result of this, the individual’s main residence will be available for principle private residence relief, whereas the part let out will not be available for PPR instead, lettings relief will apply to this part.
Lettings relief is available at the lowest of three numbers:
- Lettings relief cannot be more than the gain attributable to the let part which is not covered by PPR relief.
- Lettings relief can never exceed the amount of the PPR relief.
Lettings relief cannot turn a gain in to a loss, however it can reduce a gain to zero.
Rent a room scheme
Where a homeowner lets out part of their main residence to a lodger – i.e., the owner and the lodger share the house – then, for income tax purposes, rental income is only taxable to the extent that it exceeds the rent-a-room threshold of £7,500.
In this instance, when the owner comes to sell their house, full PPR relief will be available. There is no need for the taxpayer to apportion the gain into that which relates to the owner-occupied part and that which relates to the let part.
Business use of home
Principle private residence relief is not available in respect to any given area of the home used exclusively as a place of business. This could mean creating an office room for someone who is self-employed or working from home. The relief will be denied only in the room that is only used for business. Any gain arising on the sale of the home must be apportioned and the part used for business will be liable to capital gains tax.
To counter these rules, the part of the home that is used for business use should also be available for private use. For example, a room used for an office could also be used as a children’s study room. By ensuring that the room is available for both business a private use, principle private residence relief will be available for the whole property.
From an income tax perspective, relief is only available if expenses are incurred wholly and exclusively in relation to that business. If part of the room is used for business and part is used for private, you must allowable deduction for business use must be apportioned.
Any gain arising in the last 9 months of ownership will still be fully exempt, as long as all of the house has been used for living accommodation at some point during the period of ownership.
More than one residence
If an individual owns more than one private residence, HMRC will determine which of the two properties will be treated as the principle private residence for CGT purposes. HMRC usually go with the property which is most commonly used as a main residence.
However, the taxpayer can instead make an election to nominate one of the residences as their PPR for CGT purposes. In order to make that election, the individual must actually reside in both properties.
A taxpayer can only have one principle private residence at any given time. Overlap periods are normally not allowed for PPR. However, the last 9 months of ownership of a property is always treated as a period of exemption.
Where spouses are living together, they may only have one qualifying PPR between them. It is not possible for them to each own a property, and for each of them to elect for the different properties to be their own respective PPRs.
Couples who are not married or in a civil partnership can, however, each have a property qualifying for PPR relief, and will lose this privilege on marriage or entering a civil partnership