24 Nov Private Residence Relief: What it is and What are the conditions?
On the disposal of the property or a business asset, the relief on Capital Gains Tax (CGT) is quite widely known. The main requirement for the principal private residence relief (PPR) is the residence on the intended property by a taxpayer.
There are still questions around it, because you might be thinking of the period and the timing of your presence in the relevant house.
What if you are not living permanently in your house? And, how long do you have to live in your residence to avail the relief?
We will try to answer all these concerns.
What is principal private residence relief?
Making profit out of the property selling or an asset makes you liable to pay CGT on the sale. Under few conditions, you may get to enjoy your profits completely tax free under private residence relief . The requirement will be top-hole if you have only one home at a time. In that case, you just have to show some additional evidence to claim the relief.
Under what conditions your relief will be denied?
Lets just go through with a scenario-based example. A taxpayer was living in a property without gas supply services. He had to use cold water during this period and he buys food from the local market because he can’t cook at home. Now, he is claiming relief. He also claimed council tax exemption based on the scenario.
Now HMRC is smart. They will quickly land on the conclusion that he only lived there for the purpose of repairs. His request will be denied.
What if you own several properties?
Miss Julia Blackwood owns multiple properties. She claimed the relief for her primary property. HMRC goes after her electricity usage and they find electricity usage to be zero. The request made by Miss Blackwood will be denied on the grounds that she had not lived there.
Mr. Jonathan Steed inherited the property but lives in his other main residence. He now occasionally lives in his inherited property. He is using his main residence for capital gains tax. His change of mind drives him to declare his inherited property as his main one. Now he wants to claim property residence relief (under section 222) on his inherited property.
HMRC will deny Mr. Steed’s claim that the inherited property had never been his main property.
How to work out private residence relief?
The scheme has some quirks to it. HMRC has approved some recent claims, so it is worth looking into. If you think that you can make a legitimate claim then give it a go.
The ownership period will start from the date the dwelling house was acquired. It will end when it is disposed of.
As long as the dwelling house has been the main residence, the last 18-month period will be used to qualify for the relief. It doesn’t matter for what purpose you were using that property.
In some circumstances, when the house is not in use and comes into the category of the main house. The house will still qualify for the relief. The periods of actual occupation comes in when calculating the profits that qualifies for the relief.
What is the condition for PPR if the house is not occupied?
For 12 straight months if the house is not occupied by the resident he can’t sell the old home, it can not be treated as the main residence in that period. The condition will also be applicable if the new house is undergoing renovations. If you can make an exceptional case, HMRC can also consider a period of two years.
What if you want to build your own house?
Not a lot of people can buy a house. Some actually prefer to construct it. Same conditions will be applied in that case.
What other conditions will apply?
If you are a businessman and a global citizen then it’s not possible for you to live in one house permanently. In some certain conditions the absence period can be treated as residence time only if:
- There’s no other dwelling house that qualifies for relief during the period.
- And, there is some time when the dwelling house remains as the main house, either it is before or after the period.
What is the qualifying period of absence?
Here is the qualifying period of absence from the dwelling house:
- No matter the reason, absence should not exceed three-year time;
- If the owner is outside the UK and doing his job out of the country;
- Total absence of not more than four years if the individual is doing a long-distance job that is restricting his presence at home. Also, if your employer wants you to do the job away from home.