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Private Residence Relief (PRR): Applicability, Periods, and Rules

Published by Shailesh Sapkota
Posted Date: May 21, 2024 , Modified Date: May 22, 2024

Private Residence Relief (PRR) is a significant tax relief scheme that offers individuals an opportunity to get relief from Capital Gains Tax (CGT) on the sale of their main residence. This relief is vital as it benefits individuals looking to replace their existing main residence with another main residence of similar value by ensuring that the proceeds of the sale of the old home are not diminished by a charge to CGT.

It also aims to prevent homeowners from being taxed on the gains made from selling their homes, recognising that these gains are often the result of property appreciation rather than investment activity.

Applicability

PRR applies when an individual disposes of a dwelling house (including normal up to half a hectare of adjoining land) and, which has, at some time during their ownership, been their only or main private residence.

Sometimes, PRR may not be available for the whole period of ownership, however, taxpayers are entitled to PRR full relief if:

  • The dwelling house has been their only or main residence throughout their period of ownership.
  • They have not been absent, other than for an allowable period of absence or because they have been living in job-related accommodation, during their period of ownership.
  • The garden or grounds, including the buildings built on them, are smaller or equal to the permitted area.
  • During their period of ownership, no part of their home has been used exclusively for business purposes - working from home using a room that is also used for non-business purposes will not prevent entitlement to full relief.

There are a host of rules that need to be followed for Private Residence Relief.

Period of Ownership for PRR

The period of ownership, also known as the period of occupation, refers to the duration for which an individual has owned a property. It includes periods of both actual and deemed occupation.

private residence relief

Actual Occupation

Periods of actual occupation refer to the timeframe during which an individual physically resides in the property, which is their main residence.

Deemed Occupation

Periods of deemed occupation refer to the timeframe during which an individual is deemed to have occupied their property as their main residence, even if they were not physically residing there. This period includes:

  • The last nine months of ownership (always exempt if the home or dwelling has been the main residence at some point)
  • Any period spent living overseas due to employment
  • Up to four years of absence as a result of working elsewhere in the UK (employed or self-employed)
  • Up to three years of absence for any reason

To be eligible for the deemed occupation period, the absences in Point 2 to Point 4 must be preceded and followed by a period of actual occupation.

The condition to reoccupy the property after the period of absence does not need to be satisfied for points 2 and 3 above where an employer requires the individual to work elsewhere immediately, thus making it impossible to resume actual occupation. The absences at 2 and 3 will also apply if the employment was that of your spouse or civil partner.

PRR for Non-UK Resident

Non-UK residents are also eligible for PRR on gains arising from the sale of UK Residential property. The rules for PRR for non-UK residents are similar to those for UK residents, but there are specific additional rules that need to be considered when claiming PRR for non-UK residents.

One of the important rules is for non-qualifying tax years. These rules effectively introduced a day count condition for the property situated in the UK where the individual is a non-resident. For the day condition to be met, the individual must spend at least 90 days in the house during the relevant tax year. If they pass this, that relevant year will qualify for PRR; however, if they fail to meet this criterion, that relevant tax year will not be eligible for PRR. The 90-day occupation period does not need to be consecutive.

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PRR if House is Used for Business Purposes

Where a house, or part of it, is used wholly and exclusively for business purposes, this relevant part loses its PRR and becomes taxable. It should be noted that there is no benefit of deemed occupation on the part of the property used for business purposes.

private residence relief

However, where part of the property was used for business purposes but was also used as the taxpayer’s main residence at any time, the exemption for the last nine months applies to the whole property. But if the part has always been used for business purposes, the nine-month exemption for that part is not available.

For Example, 

Roman, a UK Resident, sold his house (his only main residence) on 4 September 2023 for Β£580,000. He purchased the house on 9 April 2011 for Β£250,000. The house had five rooms, among which one room was always used for business.

In this relevant scenario, the net gain before PRR will be Β£330,000 (Β£580,000 - Β£250,000). Now, while claiming the PRR, he will only be able to claim PRR on the 4/5th part of the house, as 1/5th has always been used for business. So, he would only be able to claim a PRR of Β£264,000.

Conclusion

Private Residence Relief is a valuable tax relief scheme in the UK that can significantly reduce the tax liability associated with selling a primary residence. Understanding the applicability, period of ownership, and business use is crucial for homeowners to ensure compliance with HMRC regulations and to maximise tax savings.

Seeking professional advice from tax advisors or accountants can help individuals navigate the complexities of PRR and make informed decisions regarding their property transactions.

Need expert advice to navigate your claim for Private Residence Relief?

Contact us today for efficient and hassle-free assistance.

Shailesh Sapkota
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