PRINCIPAL PRIVATE RESIDENCE RELIEF (PPR) – UK TAX

Am I entitled to claim PPR Relief?

To qualify for this relief, ownership alone will not be sufficient enough, you must have occupied the property at some point. To be entitled for the full 100% relief you must meet all of the following conditions:

  • The property was your only or main home throughout the period of ownership
  • You occupied, or were deemed to have occupied, the property throughout the period of ownership
  • You have not privately rented out part of the house (see lettings relief below)
  • You have not used part of the property exclusively for business (see restrictions below)
  • The grounds are less than 5,000 square metres in total

If you said yes to all the above, you will pay no capital gains on the sale of your home and you will not need to record it in your tax return.

What if I haven’t always lived at my property?
If you haven’t lived at the property for the entire duration of ownership, then relief is restricted to the time you resided there and it was considered as your main home. This simple formula should be used to calculate the gain:

PPR Relief         =        Periods of occupation (months) /  Entire period of ownership (months)        X            Gain

Deemed occupation
It is important to note that there are periods where you are deemed to have occupied the property even if you were not living there.
If the property has been your main home at some point, then the last 18 months of ownership will always be considered as a period of deemed occupation. This means that you can move to a new home and still receive the full PPR relief if you sell the property within 18 months.

As an example – you purchased a house in January 2008 for £250,000 and sold the property in January 2018 for £500,000. You moved into the property immediately and moved out in January 2014. Therefore:

The gain is £250,000
The entire period of ownership is 120 months.
The period of actual occupation is 72 months
The period of deemed occupation is the last 18 months.

PPR Relief         =          90 /120      X        250,000        =        £187,500

Chargeable gain      =       £62,500

It is also possible to be absent from the property and still treat these as periods of occupation for the purposes of PPR relief. It is important to note that you must have physically occupied the property as your main home prior to, and after, the period of absence. Qualifying periods of absence include:

  • Up to 3 years for any reason*
  • Your employment and duties are carried on outside of the UK (for up to three years)
  • Absences of up to 4 years if the distance from your place of work prevents you from living at home or your employer requires you to work away from home.

* There are further complications if you have more than one property. You would need to nominate a property as your main home. Certain criteria must be met to allow you to make this nomination. We recommend speaking to a tax advisor for more information on this.

What if my property has been let out?
If you have rented out any part of your house, you may be entitled to Lettings Relief. Lettings relief is an additional relief on top of any available PPR relief but is restricted to the lowest value of:

  • The PPR relief already calculated
  • The chargeable gain
  • £40,000

If we continue with the previous example and the property was let out during your absence, then the relief would be the lowest of:

  • The PPR relief = £187,500
  • The chargeable gain = £62,500
  • Or £40,000

The chargeable gain is calculated as follows:

Proceeds                                      £500,000
Less: Cost of property                  (£250,000)
Less: PPR Relief                          (£187,500)
Less: Lettings relief                      (£40,000)

Chargeable gain                            £22,500

The restriction to the amount of lettings relief means that this cannot create a loss, but it can reduce the gain to zero.

What is the capital gains tax rate on residential property?
The chargeable gain is taxable at 18% for basic rate taxpayers and 28% for higher rate taxpayers. It is also important to note that you are still able to utilise the annual exemption against this gain (exceptions can apply for non-domiciled individuals). Please see our article on UK Capital Gains Tax for more information.

It is important to note that taxpayer’s who live outside of the UK may also be subject to capital gains tax on the sale of UK property. Please see our article on Non-Resident Capital Gains Tax for more information.

How long do I need to have lived there to claim PPR Relief?
To claim PPR the property being disposed of must be your ‘main residence’. However, what constitutes a main residence is not defined in statute, and rather vaguely we are left with examples of case law which looks at the quality of occupation, rather than quantity.

Indications that would point towards ‘quality’ of occupation would be:

  • Documents in the taxpayer’s name – utility bills, home insurance, telephone bills etc.
  • The type of mortgage
  • The length of the commute to work
  • Place of registered doctor
  • Proximity to your child’s school

Tribunals have found that there must be some degree of “permanence, continuity, or expectation of continuity” for a property to be classed as a taxpayer’s residence.

What if I made a loss on the sale of my main home?
In the unfortunate event that you made a loss on the sale of your main home, you are unable to use this loss to offset your capital gains.

If there are periods where you did not occupy the property, and only partial tax relief would have been available had you been claiming PPR relief, then you may be able to claim a portion of this loss. We recommend speaking to a tax advisor for more details.

Are there any other restrictions to the relief that I can claim?
There are certain restrictions to the amount of PPR relief you can claim if you have used your main home as a place of business. Where an area of your home has been used exclusively for business, only the gain associated with the living area of the property (based on floor area) may be used to calculate the relief.

Please be aware that this is only a basic overview of Principal Private Residence Relief. This article should not be taken as tax advice as there are many unconsidered factors that could affect individuals separately. We strongly recommend that you contact us directly for more information.

Here are a few links to other articles that may be of interest.

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