Private Residence Relief CGT is an important tax relief that can reduce or eliminate Capital Gains Tax when you sell your main home. Understanding how it works, who qualifies, and how it is calculated can help ensure you do not pay more tax than necessary.
If a property is sold at a loss, the relief may restrict the amount that can be claimed. Because it is applied automatically, a loss may not be allowable if the property qualifies. Where more than one residence is owned, a nomination may be beneficial so that the most appropriate property qualifies.
What Qualifies for Relief
The relief applies to the sale of a dwelling house that is or has been used as an individual’s only or main residence. Although not defined in legislation, guidance is provided by case law. It will usually include the main home and may extend to structures such as garages or outbuildings. Self-contained units such as flats can also qualify.
The relief can extend to gardens and grounds, generally up to half a hectare including the house. A larger area may still be accepted where required for reasonable enjoyment.
Occupation Requirements
To qualify, the property must have been occupied as a residence, implying permanence and continuity. No minimum period is set by HMRC and each case is considered on its facts. Short stays may not be accepted, whereas returning to a previously occupied property may be treated as resumed occupation.
The quality of occupation is key. Consideration will be given to whether the property genuinely functioned as a home. Evidence of normal day to day living can support a claim if challenged.
How the Relief is Calculated
The relief is calculated by comparing periods of occupation with total ownership. Certain absences may still be treated as occupation, meaning the full gain can sometimes remain exempt.
Common Complexities
Complexity arises where part of the home is used exclusively for business, as that portion will not qualify. Where a property is acquired or developed with the intention of making a profit, the relief may be denied. For newly constructed properties, relief is generally applied from the date construction is completed.
Periods of non-occupation can reduce the relief available, although some absences may still qualify. The ownership period begins on completion rather than exchange.
More Than One Residence
Where more than one residence is owned, a decision must be made as to which is treated as the main home by notifying HMRC within two years. Where no nomination is made, the decision will be based on the facts.
Living Abroad
For individuals living abroad, additional restrictions are applied. These are linked to the Statutory Residence Test, although some allowances may still be available.
Couples
Spouses and civil partners are treated as having only one main residence between them, which may create additional considerations.
Lettings Relief
Lettings relief may apply where part of a home has been let, but it is now restricted. Since April 2020, it is generally only available where the owner and tenant occupy the property at the same time.
Reporting Requirements
UK residents must report and pay any Capital Gains Tax within 60 days of completion where the gain is not fully covered. This applies even where a self-assessment return is submitted. Non UK residents must submit a return regardless of whether tax is due.
How We Can Help
The tax treatment of residential property disposals can be complex. Professional advice can be taken to confirm eligibility, calculate the relief available and ensure all reporting obligations are met.