PRR: Private Residence Relief: At a glance

If you make a profit (a 'gain') when you sell your own home, that gain is tax-free if you can meet all the conditions to claim full CGT Private Residence Relief (PRR).

This relief can be very straightforward if you own one home at a time and have the required evidence to show that you meet all the qualifying conditions.

A claim for relief can be complicated if you own multiple properties or are developing properties.

In order to claim PRR:

• You must own the freehold or leasehold of the property.

It must have been:

• Occupied as a dwelling: i.e.fully habitable as a home.
• Occupied as your only or main private residence.

The relief does not apply to commercial property.

The relief covers:

• The building and a permitted area of up to 0.5 of a hectare (1.25 acres) of gardens and grounds including outbuildings.
• The area may be extended in very exceptional cases, where larger grounds are in keeping with the property.

Permitted absences

• Provided that you have lived in the property as your home, certain absences are permitted, for example, you can live in another home or work elsewhere abroad.
• When such an absence is permitted within the rules you are treated as if you lived in the property throughout these periods.
• The last nine months (18 months for disposals before 6 April 2020) of ownership are covered by PRR if you meet the main conditions, even if you no longer live there. A longer period is given in certain cases, see Private Residence Relief. 

If you own two or more homes

• You can make an election to HM Revenue & Customs (HMRC) if you have two or more homes that qualify for PRR, in order to say which home is your main private residence.
• It is possible to 'flip' homes to avoid CGT by making elections at strategic times.

Restrictions on the gain

• If the property has been jointly owned, let, or in mixed business use, a proportion of the gain may be chargeable to CGT.
• If all or part of the property is used exclusively for commercial use as a business e.g. as an office, surgery, workshop, hotel etc. relief is restricted in part and an apportionment is made. Your gain is usually time apportioned and the period for which it was used commercially is not covered by the relief.
• If the home has been let, a further relief, CGT Lettings Relief could be claimed up until 5 April 2020 provided that the property was occupied as an only or main residence at some time during ownership. See Private Residence Relief for changes to the relief from 6 April 2020 which are more restrictive. 

Restrictions

No relief is given if:

• A dwelling is acquired wholly or partly for the purpose of realising a gain. e.g. you are a property developer.
• All or part of a house is used exclusively for the purposes of a business. If part of a house is used exclusively for the purposes of a business, the gain eligible for relief must be apportioned on a just and reasonable basis.

For gains accruing after 5 April 2015, no PRR is available in respect of:

• A Non-UK resident, if not present in their UK home for 90 days in a tax year.
• A UK resident, if claiming relief for an overseas home and not present in that home for 90 days in a tax year.

There are special rules for married couples.

• Married couples and civil partners who are not separated are treated as if they are just one individual. They are only entitled to designate one property at a time between them as a private residence. 
• Transfers of residences between married couples and civil partnerships have special rules which effectively back-date periods of ownership. Used carefully these may create useful tax planning opportunities.
• There are special rules on divorce that may extend PRR.

What's new in legislation?

See Private Residence Relief

Review of recent tax tribunal decisions and precedents

See Private Residence Relief

Useful guides on this topic

Private Residence Relief
What is Private Residence relief (PRR)? What are the qualifying conditions? Can you claim relief on two homes? How do you claim PRR? Can you claim PRR if you develop your garden? 

Private Residence Relief claims or the lack of them are regularly investigated by HMRC.

The rules for this tax relief may become extremely complicated if you:

• Are frequently buying and selling property.
• Are making a business of buying and selling property (developing property for a profit).
• Purchased a residence that was unhabitable.
• Lived in a property for a very short time.
• Have periods of absence.
• Have let or sub-let your home.
• Have used all or part of your home as a business.
• Jointly own property.
• Move into a care home.

You need to review the conditions for the relief and, if any part of your gain on disposal is not covered by the relief, notify HMRC of your 'chargeability to tax'. You will then be asked to complete a tax return. You may also need to complete a UK property disposal return, and pay any CGT, within 60 days of completion. See CGT: Reporting when & how?

Selling off or developing your garden?

Do not listen to others, see our definitive guide on this topic: Gardens: selling or developing

This takes you through just about every conceivable problem and explains the tax consequences of selling a garden for development purposes, developing the garden yourself, and how to avoid the pitfalls.

Tax Tips: elections and evidence

• If you own two or more properties and fail to make an election to nominate one property as a main residence HMRC may decide the matter for you, based on the facts of the case. This might not give the best tax outcome.
• There is a time limit for making the election. In some limited circumstances, a late election can be possible. 
• A property must be a 'residence' in order to make a residence election. 
• If you own or occupy a single property no election is possible.
• The onus is on you to prove that have met the qualifying conditions to make a claim.

See Private Residence Relief for answers to Tax FAQs, a summary of the essential requirements in terms of evidence and planning points.