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Principal Private Residence relief

Principal Private Residence relief is a relief from UK capital gains tax on the sale of your main residence.

Who qualifies for relief

Any individual is entitled to the relief on any gain arising on the disposal of his or her only or main residence.

Trustees of settled property and personal representatives may claim relief in some circumstances. Companies are not entitled to relief.

You’re entitled to relief if you own the freehold of your home or if you’re a tenant owning a lease. You’re also entitled to relief if you jointly own the freehold or lease with someone else.

What qualifies for relief

If you dispose of:

  • a dwelling house (which can include a house, flat, houseboat or fixed caravan) which is your home
  • part of a dwelling house which is your home
  • part of the garden attached to your home you would normally have to pay Capital Gains Tax on any gain you make

You’ll be entitled to full relief where all the following conditions are met:

  • the ‘dwelling house’ has been your ‘only’ or ‘main residence’ throughout your ‘period of ownership’
  • you’ve not been absent, other than for an allowed period of absence or because you’ve been living in ‘job-related accommodation’, during your ‘period of ownership’
  • the ‘garden or grounds’ including the buildings on them are not greater than the ‘permitted area’
  • no part of your home has been used exclusively for business purposes during your period of ownership

Only or main residence

If you live in, as your home, 2 or more houses, you can only have 1 main residence at a time for Private Residence Relief. You can nominate which residence is to be treated as your main residence for any period. Your nomination must be made within 2 years of the date you first have a particular combination of residences. If there is a change in your combination of residences, a new 2-year period begins. If you don’t make a nomination, the question of which is your main residence will be determined on the facts.

If you’re married or in a civil partnership and you’re not separated from your spouse or civil partner, you can have only 1 main residence between you. If, when you married or registered as civil partners, you each owned a residence and you’ve continued to use both residences, you can nominate jointly which is to be the main residence, and the 2-year period for doing so begins on the date of marriage or registration as civil partners.

If you’re separated, each of you may have a different only or main residence and each may be entitled to relief on any gains arising on the disposal of the residence(s).

Period of ownership

Your period of ownership begins on the date you first acquired the dwelling house, or on 31 March 1982 if that is later. It ends when you dispose of it. The final 18 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point (this is due to reduce to 9 months from April 2020).

If the dwelling house has not always been your only or main residence, you’ll need to split the gain. When calculating the proportion of the gain eligible for relief, you multiply the gain by a fraction equal to the periods of occupation (including the final 18 or 9 months as appropriate) divided by the period of ownership (both periods starting at 31 March 1982 if the house was owned before that date). You don’t introduce valuations of the property at the dates of changes of use.

Period of absence

Some periods when you were not using the house as your only or main residence will still qualify for relief. These should be treated as periods of actual occupation when you’re calculating the fraction of any gain that qualifies for relief. If for up to a period of 12 months you don’t occupy your new home when you acquire it because you’re not able to sell your old home, or you need to carry out refurbishment, you can treat up to the first 12 months as if the house had been your only or main residence in that period. The same treatment applies when you buy land to build a house on.

Certain other periods of absence from your dwelling house may be treated as periods of residence if both before and after the period there’s a time when the dwelling house is your only or main residence.

For sales or disposals prior to 6 April 2015 there was an additional requirement that during the period of absence you had no other dwelling house eligible for relief.

If you’ve another dwelling house eligible for relief, for example a house or flat which you bought or rented as your home while absent, you’ll need to make a nomination in favour of the original dwelling house, if you want the period of absence to be treated as a period of residence at that house.

The qualifying periods of absence are:

  1. absences for whatever reason, totaling not more than 3 years in all
  2. absences during which you’re in employment and all your duties are carried on outside the United Kingdom (UK)
  3. absences totaling not more than 4 years when
  • the distance from your place of work prevents you living at home, or
  • your employer requires you to work away from home in order to do your job effectively

You’ll keep the exemption for absences b. and c. if you cannot return to your dwelling house afterwards because your existing job requires you to work away again. The absences at b. and c. will also apply if the employment was that of your spouse or civil partner.

Job-related accommodation

If you live in accommodation that is job-related and you also own a dwelling house that you intend to occupy as your only or main residence, the dwelling house you intend to occupy is treated as actually being occupied by you as a residence during the period in which you intend to occupy it, even if you never actually live there. This means that you may nominate that residence as your only or main residence and get relief on the whole or a part of the gain. Please see the paragraph headed ‘Only or main residence’ above. If your intention to live in the dwelling house ends, then the dwelling house is no longer treated as your residence.

This extension of Private Residence Relief also applies if you’re self-employed. The job-related accommodation must be provided by another person under the terms of a contract that requires you to live in the property and carry on a particular trade.

Letting Relief

If you only get partial relief because you’ve let some or all of your dwelling house as residential accommodation, you may be entitled to a further relief. This further relief is due where:

  • you sell a dwelling house which is, or has been, your only or main residence, and
  • part or all of it has at some time in your period of ownership been let as residential accommodation

The amount of relief is the lowest of:

  • the amount of Private Residence Relief already calculated
  • 40,000
  • the amount of any chargeable gain you make because of the letting

From April 2020, lettings relief will only be available to those who are in shared occupancy with a tenant.

 

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