When Does Private Residence Relief Apply – and When Doesn’t It? Clear Criteria and Common Exceptions Explained

Private Residence Relief (PRR) applies when you sell your main home, helping you avoid paying Capital Gains Tax on any profit made. You can claim this relief if the property has been your only or main residence during the time you owned it. Even if you move out before selling, you might still qualify for relief for up to the last nine months of ownership.

However, PRR does not apply if part of your home was used solely for business or rented out, except in some cases where letting relief might help. Understanding exactly when you can and cannot claim PRR is key to making sure you pay the right tax and keep more of your money.

Knowing the rules around your main residence, periods of absence, and use of the property can save you from unexpected Capital Gains Tax bills. This guide will help you understand when Private Residence Relief applies and the exceptions to watch for. Find more detail on tax when you sell your home.

Understanding Private Residence Relief

Private Residence Relief (PRR) helps you reduce or avoid Capital Gains Tax (CGT) when you sell your main home. It applies only if specific rules about use and ownership are met. Knowing these details ensures you apply the relief correctly and save money on tax.

Definition and Purpose

Private Residence Relief is a tax relief in the UK that cuts down the amount of Capital Gains Tax you pay when selling your primary home. The relief applies if the property has been your main residence during the time you owned it. It is designed to protect homeowners from being taxed on the profit made from selling their personal home.

PRR covers both the building and a limited area around it, usually up to 0.5 hectares (1.25 acres) including gardens and outbuildings. It does not apply to commercial properties or a second home simply lived in by family members. You must use the property yourself as your main home to qualify for PRR.

Eligibility Criteria

To qualify for Private Residence Relief, the property must be your main and only or main home during most of the time you own it. If you rent it out sometimes or use it for business, tax relief might be reduced or lost. You need to have lived in the property as your main home.

Certain rules also allow some relief if you stop living there but do not immediately sell it, such as the final 9 months of ownership being automatically covered. Periods when the property is vacant or used by others may reduce eligibility. Properties held in trusts or owned jointly may have special rules.

How Private Residence Relief Reduces Capital Gains Tax

When you sell a home eligible for PRR, the relief can exempt some or all of your capital gain from tax. The gain is worked out by subtracting the price you paid and any allowed costs from the sale price.

The relief covers:

• The time you lived in the property as your main residence
• The last 9 months of ownership even if you were not living there
• Periods when the home was unoccupied counted under certain conditions

Any time the property was rented out or used for business may reduce the relief on a pro-rata basis. This reduces the taxable gain and can save a large amount on CGT bills. 

When Does Private Residence Relief Apply?

Private Residence Relief (PRR) helps reduce or remove Capital Gains Tax (CGT) on the sale of your main home. To qualify, your property must meet specific conditions about being your main residence and how you use it during and between ownership periods. The relief also considers certain times when you are temporarily away and special rules for married couples or civil partners.

Qualifying as a Main Residence

To get PRR, the property must be your only or main residence during the time you own it. This means you live there most of the time and use it mainly as your home. If you have more than one home at the same time, you must choose which one is your main residence by nominating it within two years.

The relief covers the house plus up to 0.5 hectares (1.25 acres) of surrounding land. This includes gardens and outbuildings linked to the home. However, if the grounds are larger but still appropriate for the property, you may claim relief on a bigger area in exceptional cases.

Periods of Absence

Private Residence Relief can still apply to some times when you’re not living in the property. You can get full relief for the last 9 months you own the home, even if you’ve moved out during this time.

Other absences might qualify too, like:

• Working elsewhere temporarily
• Living somewhere else for health reasons
• Moving to care for someone

In these cases, you may claim relief for up to 3 years of absence. However, if you let the property out or use it for business, only parts of that time may be covered. The relief might reduce according to the time the property was rented or not your home.

Relief for Married Couples and Civil Partners

If you’re married or in a civil partnership and own the home together, both of you can benefit from Private Residence Relief. The time your spouse or civil partner spends living in the property counts as if you lived there yourself.

When you sell the home, you both get relief separately on your share of the gain, which can reduce the CGT bill significantly.

You must ensure both names are on the ownership documents to claim relief fully. If one partner leaves the property but the other remains, the relief may still cover the whole property in some cases, depending on usage and ownership.

More details on the rules are available in official government resources such as Private Residence Relief guidance.

When Private Residence Relief Does Not Apply

Private Residence Relief (PRR) does not cover every situation involving property. Your eligibility can be affected by owning more than one home, renting out your property, or certain periods during ownership that do not count for Capital Gains Tax (CGT) relief. Knowing these limits helps you understand when CGT may still apply.

Disposal of Second Homes

If you own more than one home, PRR typically applies only to one property at a time. You must nominate which home is your main residence if you have two homes. Failing to nominate within two years of owning the second home means PRR will not apply to the new property.

Without nomination, CGT is charged when you sell the second home. PRR will only protect the property you declared your main residence during the ownership period.

You cannot claim PRR for any second home that wasn’t your main residence, even if you lived there occasionally. This means the gain on selling a second home is usually subject to CGT unless specific relief or exceptions apply.

More details on nominating your main home can be found on the GOV.UK Private Residence Relief guide.

Letting Out the Property

If you let out part or all of your home, PRR may be limited. Full relief only applies if the property was your only or main residence. When you rent it out, you lose some or all of the relief for the letting period.

Letting Relief can reduce CGT but only up to £40,000 (or £80,000 if you share ownership). This relief applies only if you lived in the home as your main residence during part of the ownership.

If the property was purely an investment and never your main home, PRR does not apply at all, and CGT will be charged on any gain when you sell.

Periods Not Covered for CGT Purposes

Certain periods during your ownership are excluded from PRR. For example, if you were away from the property and it was not your only or main home, those months may not count.

Usually, the last nine months of ownership are exempt from CGT regardless of use, but other absence periods are not covered unless they meet specific rules.

If you owned the home but did not live there for some years, you can only claim PRR for the time it was your main residence. The rest of the period may attract CGT when you sell.

It is important to keep accurate records of your residency periods to calculate PRR correctly. More on these rules is available in HMRC’s manual on periods covered for relief, such as CG64977 – Private residence relief: general rule.

Calculations and Claim Process

You need to understand how to work out your Private Residence Relief (PRR) and when you may get only part of the relief. Knowing how and when to report your capital gains tax (CGT) claim is essential. Also, tax years and deadlines affect your claim and payment.

Partial Relief and Restricted Claims

If you haven’t lived in the property for the entire time you owned it, your relief may be limited. PRR covers the period when the property was your main home plus the last 9 months of ownership, even if you weren’t living there then.

Certain absences, like working abroad or relocating for a job, may count as periods of residence for PRR up to four years. You calculate relief by dividing the time you lived there plus allowable absences by the total ownership time and apply this ratio to the gain.

Properties used partly for business or rented out might get only partial relief. You’ll need to separate the gain related to those uses to calculate the correct CGT.

Reporting and Paying Capital Gains Tax

You must report your gain and any claim for PRR to HMRC using the CGT reporting service. This applies if your gains exceed your annual exempt amount or if you sold a residential property after 5 April 2020.

You should report within 60 days of the sale completion. This also applies when paying the CGT owed. Late reporting can lead to penalties and interest charges.

You can use a tax accountant to help with calculations and ensure you meet reporting rules. This can avoid errors in your claim and support you if HMRC asks for proof.

Key Deadlines and Tax Year Considerations

The deadline to report and pay CGT linked to a residential property sale is 60 days from completion. This timeframe is strict, so keep good records of dates and ownership periods.

The tax year for CGT runs from 6 April to 5 April. If you sell late in one tax year but report in the next, the gain still counts for the year you sold the property.

Keep track of PRR changes and exemptions that apply each tax year. For example, the 9 months final relief rule has been consistent but may change, so always check the current rules before making a claim.

For more detailed information on calculation and claiming, visit this Private Residence Relief calculation guide.

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