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NEWS

Private Residence Relief (PRR)

When an individual sells their only or main residence, Private Residence Relief (“PRR”) can exempt all or part of the capital gain. The standard capital gain tax rates on residential property sales is 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers. However from April 6, 2024 the higher rate reduced to 24% while the basic rate remained at 18%.


A private residence is defined as a dwelling house and includes any relevant building within the curtilage of the main house. The relief also extends to up to half a hectare of land, or more if required for the reasonable enjoyment of the property.


PRR is calculated based on the proportion of time the property was occupied by the taxpayer compared to the entire period of ownership. If an individual has lived in the property throughout their ownership the entire gain will be covered by PRR.


Occupation includes both actual and deemed occupation. The final 9 months of ownership are always treated as deemed occupation provided the taxpayer lived in the property at some point.


In addition, three types of absences are treated as deemed occupation, provided the taxpayer has lived in the property before and after the absence:


  1. Any period when employed abroad.

  2. Up to four years when working away from home within the country (including self-employment).

  3. Up to three years for any reason.


If the taxpayer is unable to reoccupy the property due to employment conditions the requirement to reoccupy it for the absence to qualify as deemed occupation is waived.


Key Points

  • If the taxpayer acquires a property as their main residence but is unable to occupy it immediately due to construction, renovation, or decoration, this period of absence is considered occupation as long as it doesn't exceed 24 months.

  • The occupation must imply an assumption of permanence and continuity to qualify as a residence. For instance the taxpayer must have lived in the property for at least 90 days in a year for it to be considered their main residence. Other factors are also considered in determining the main residence.

  • If part of the home is used exclusively for business PRR will be apportioned.

  • If part of the home is let out, PRR will be apportioned accordingly, and the let portion will not qualify for PRR. However Letting Relief may be available.

  • If the home is let out under the Rent a Room Scheme this does not affect PRR.

  • If the taxpayer has more than one residence they can nominate which is their main residence by electing within two years of occupying the second property. The nomination can be varied at any time.

  • Married couples can only have one main residence between them. If a property is transferred between spouses the receiving spouse inherits the residence history of the donor.

  • In the case of separation, if one spouse leaves the home, it is no longer their main residence. If the property is sold within 9 months PRR will still apply due to the "9-month rule." However if it is sold after the 9 months a capital gain may arise.

  • If a property is transferred to a former spouse as part of a financial settlement after separation, it may still qualify as the transferring partner's main residence, provided it remains the main residence of the former partner.

  • PRR also applies to deferred sale agreements made in divorce settlements concerning the marital home.


Letting Relief

If part of the residence is let out as residential accommodation while another part remains the taxpayer’s main residence, Letting Relief may apply. Letting Relief is the lower of:

  1. The gain attributable to the letting.

  2. The PRR.

  3. £40,000.


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Authored by: London Team

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