When you dispose of any house (all or part thereof), or even part of a garden attached to your property, you would normally be required to pay Capital Gains Tax (CGT) on any gain made as a result of the sale. However, pursuant to certain eligibility criteria, you may be entitled to full relief from CGT under a tax relief called ‘Private Residence Relief’ (PPR).
What is Private Residence Relief?
Private Residence Relief, shortened to PRR, is a Capital Gains Tax relief that's automatically applied when you sell property in the UK.
Capital Gains Tax is usually due on any gain made from the disposal of:
- A dwelling (including a house, flat, fixed caravan or houseboat) which is your primary home
- Part of a primary dwelling house
- Part of a garden that is attached to your dwelling
However, if the following conditions are met, you will be entitled to full relief:
- The dwelling has been your main or only residence throughout your ownership
- Other than for any allowed period of absence, or due to living in employment-related accommodations, you have not been absent during your period of property ownership
- The grounds and gardens - including the buildings on them - are not greater than the area permitted (see below)
- No part of the dwelling has been exclusively used for business purposes since you have owned it - this includes working from home in a room that is not used exclusively for business
If you meet all of these conditions, you will not be required to pay CGT on any gains made from the sale of your property. So long as you’ve made no other disposals and do not wish to lodge any other capital gains claims, you will not be required to complete the Capital Gains Tax summary sections of your tax return.
Partial Private Residence Relief
Even if you don’t meet all of the above conditions for full private residence relief, under certain circumstances you may still be eligible for partial relief.
To find out if you are eligible for partial private residence relief, you will need to complete the CGT summary pages where your eligibility for relief will be assessed.
Even if you do meet all of the above conditions, you will not receive private residence relief if:
- You acquire a property/dwelling and/or spend money on it with the intention of realising a gain upon its disposal
- You dispose of all or part of the attached garden after disposing of the home itself
What if I make a loss?
If you make a loss on the sale of your home and you would otherwise have qualified for PPR, your loss will not become an allowable loss and you will not be allowed to offset the loss against any other gains made.
The same applies to partial relief eligibility and partial loss; that part of your loss should be calculated in the same way as the partial relief would have been calculated had you made a gain.
Who qualifies for Private Residence Relief?
Any individual is entitled to receive the relief on any gain resulting from the disposal of their main or only residence. This is provided that:
- They conform to the conditions outlined above; and
- That, in calculating the gain that would otherwise be chargeable, no Gift Hold-Over Relief (obtained by any person from a previous disposal) would have to be accounted for under section 260 of the Taxation of Chargeable Gains Act 1992
Where Gift Hold-Over Relief has been obtained for transfers made prior to 10 December 2003, special transitional rules may allow PPR to still apply. Relief under such transitional provisions must be specifically lodged for claim.
Individuals are entitled to PPR if they own the freehold of their home, or if they are a tenant who owns a lease. Relief entitlement also covers those who jointly own the lease or freehold with another individual.
From 6 April 2015, any non-resident selling (or otherwise disposing of) part or the whole of a UK residential property must inform HMRC within 30 days of conveyance and may be required to pay CGT on any gains made.
Definition of terms
To further understand the parameters of the PPR conditions, here is a definition of the key terms used in this private residence relief guide:
This may be a single building or detached house; it may be more than one building (such as a house with a detached garage); or it may form part of a building, such as a flat. Should your home include multiple structures, such as several outbuildings, any PPR available may not extend to all buildings included.
Determining which buildings make up your dwelling is only relevant if the home has grounds or a garden larger than the area permitted (see below).
Houseboats and fixed caravans are included in PPR eligibility in the same way as houses and flats are. Even if your dwelling is located outside of the UK, you may still qualify for PPR.
Main or only residence
Should you reside in more than one dwelling, only one can be considered as your main residence at any one time for the purposes of PPR.
You can nominate your main residence for any period of time, but it must be made within two years of the date that you first take residence in any particular combination of dwellings. Whenever there is a change to the dwelling combination, a new two-year period must begin. Should you fail to make a nomination, the determination as to which is your main residence will be assessed upon the facts at hand.
Period of ownership
Your period of dwelling ownership begins on the date that you first acquire the property, or on 31 March 1982 - whichever is later. The ownership period ends when you dispose of it. The final 18 months of your ownership period always qualifies for PPR, regardless of your use of the property during that time, so long as it has been your main or only residence at some point.
Period of absence
Some periods of absence will still qualify for relief. For example, if for a period of up to 12 months from the date of acquisition, you do not reside at the new dwelling due to the need to carry out refurbishments or because you are unable to sell your previous home, you can treat this period as if it has been your main or only residence. Under exceptional circumstances, a period of up to two years may be considered with the same leniency.
There are other conditions under which periods of absence may be treated as periods of normal residence, so long as during the time both before and after the absent period, you reside at the dwelling in question.
The qualifying reasons for absence include:
- Any absence for no more than three years in total, for whatever reason;
- Absences relating to employment in which all duties are conducted outside of the UK;
Or absences totalling no more than four years when either:
- The distance to your place of employment prevents you from living there; or
- Your employer requires that you work away in order to carry out your job efficiently
Grounds and gardens
If you dispose of land that is included in your dwelling as grounds and/or gardens, you are entitled to relief so long as the area falls within the permitted size. The grounds or gardens include any buildings that stand upon them, so any building that is separate to your dwelling can still qualify for PPR if it stands within a permitted area of grounds or garden.
So long as your grounds or gardens cover no more than half a hectare (a little over one acre), you are entitled to PPR for all of it.
If your grounds or gardens exceed this area size, you may not be entitled to PPR for all of it - the area for which you may still be entitled to relief is known as the permitted area. This consists of the area of land that is considered to be required to enable a reasonable enjoyment of the dwelling as a primary residence.
In this case, the character and size of your property will be taken into account for assessment. You must enter the details of the property onto the Capital Gains Tax summary pages, along with details of the disposal and the gain, and any relevant information as to why you believe that all or part of the grounds and property should be exempt from paying Capital Gains Tax.
Get in touch with us
Taxation can be a complicated business and it is best to consult with a professional regarding your personal circumstances. For a deeper dive into the intricacies of Private Residence Relief law, visit the government website’s comprehensive PPR helpsheet.
If you are considering selling your home, get in contact to see how we can assist you. You can also follow this link for more information, or view our available London properties for sale.
For an up-to-date property valuation for tax purposes or if you’re just curious, use our online property valuation tool.