Q&A: Do I qualify for Principal Private Residence Relief?
John owns a UK property which was his principal private residence or main home before moving abroad for work. He purchased the property on 1 July 2010 and lived in it for five years before leaving to work overseas for two years. The property has been rented to a friend ever since.
When John moved back to the UK he purchased another property to live in. John’s friend has now vacated the original property which is now up for sale and a sizeable gain is expected. How much of the gain will qualify for Principal Private Residence Relief?
Principal Private Residence Relief or PPR is one tax relief that affects all homeowners and is hugely valuable as it protects an individual from a capital gains tax liability on a disposal of their main home. So when an individual sells their home or main property and makes a financial gain and sells the property for more than they bought it for, they are not subject to capital gains tax because it is their main home. One of the main rules to qualify for this important tax relief is that the property is their only (or main) home for the entire period of ownership which they occupied for the majority of ownership with a leeway of 9 months of not occupying the property to qualify.
In John’s case, as he had not been occupying the property as his main residence throughout his ownership, John will need to calculate if he can receive full or partial PPR relief on sale of the property.
When calculating the gain, the starting point is to identify the period of ownership. For example, if it is assumed the property is sold on 1 September, the period of ownership from 1 July 2010 will be a period of 122 months.
The next step is to calculate the reliefs available in the period of ownership which based on the details provided are as follows:
period of occupation – 60 months;
permitted absences – none (see below);
final period of ownership – nine months; and
lettings relief – none (see below).
Therefore, based on the above, it appears that the gain will only attract PPR relief for 69 months of the 122 months ownership period.
Permitted Absences to qualify for PPR
The permitted absences are:
three years of absence for any reason whatsoever (not necessarily a consecutive period of three years);
any period of absence abroad in an employment where all the duties were performed abroad;
up to 4 years (whether in a single period or not) where self employment or the duties of a UK employment require an individual to live elsewhere; and
up to four years where the individual lives with a spouse or civil partner to whom condition three applies.
The property must have been the person’s main residence both before and after the absence subject to the exception, for conditions two to four only, that the person was prevented from resuming residence by reason of the requirements of their employment.
It appears from the information provided that the client was not prevented by the conditions of their employment from resuming occupation of the original house as a main residence and so there appear to be no qualifying absence periods for PPR.
Lettings Relief
For disposals on or after 6 April 2020, lettings relief is now only available if the property continues to be the owner’s main residence and another part was let out as residential accommodation. Therefore no relief is due here.
new 30 day requirements to pay capital gains tax
From 6 April 2020, UK residents disposing of interests in UK residential properties must report any capital gains within 30 days of the completion date. Practical guidance can be found on the GOV.UK website.
