Private Residence Relief – a brief summary

The short answer is, as often in tax, the headline is an oversimplification. There are conditions and qualifications to the relief. Over the years a raft of cases have made it to court about the correct interpretation and application of the legislation, which shows how complex this area is. Ms Rayner is adamant that she took advice on whether she qualified for PPRR and declared matters correctly. Nonetheless, the press coverage is a timely reminder that you shouldn't assume there'll be no tax to pay when selling your home.

Here’s a basic PPRR checklist for individuals - if you’re a trustee or personal representative, PPRR can also be claimed, but additional rules apply.

1. Do you have one “dwelling house”? This may seem an obvious question but isn’t always straightforward where properties contain subsidiary dwellings or are of an unusual type – for example, the courts have decided that some (but not all) caravans and houseboats are dwellings for this purpose.
2. Did you buy the property intending to sell it on at a profit? If this was the primary reason for your purchase, HMRC may not only refuse to allow PPRR, but may also consider you to be a property trader liable to income tax instead.
3. Was the dwelling house your “only or main residence” throughout your period of ownership? If you've acquired more than one residence, did you make a valid election to HMRC within 2 years, stating which is your main residence? If not, the question of which property is your main residence comes down to the facts – where you spend your time, where your post is sent to, and so on. And if you’re married, it’s important to know that married couples can only have one main residence between them, even if the spouses have different occupation schedules.
4. Are the garden/grounds within the “permitted area” of 0.5 hectares? If your garden is bigger than this, you may still be able to claim full relief if a larger area is reasonably required for the enjoyment of the property, but the facts need to be looked at carefully.
5. Have there been any periods of absence? Some absences for some periods or purposes won’t affect your eligibility for PPRR, including the final 9 months (longer if you’ve had to move out into permanent residential care) but others will lead to PPRR being restricted on a time-apportioned basis.
6. Have you let out your property? Historically, it was possible to claim “lettings relief” where the main residence had been let out for periods, but the rules were tightened in 2020 so that now only lodger arrangements qualify for relief.
7. Do you use any part of your property exclusively for business use? Areas such as a professional studio or holiday let won't qualify.

There's more devil in the detail, including specific rules for divorcing spouses introduced last year, and the PPRR analysis will always be fact specific, so the best approach is always to take advice on your particular circumstances.

Remember that, if you do have some tax to pay, CGT on residential properties is payable 60 days from completion of the sale so it’s important to take advice early on how these rules will apply to you. Our team can help – just get in touch.