If you are thinking about selling a residential property, one of the first questions that often comes up is whether or not Capital Gains Tax (CGT) will apply. The good news is that in many cases, Private Residence Relief (PRR) can reduce or even remove that liability.
Why is the relief available?
The idea behind PRR is simple. If you have lived in a property as your home, you should not usually have to pay CGT when you sell it. The relief exists to make sure that people are not taxed simply for moving house, as owning your main residence is not the same as holding an investment property.
Who can make use of it?
Any property owner that has occupied a residence as their main home may benefit from PRR. Broadly speaking, the size of the property is irrelevant – the rules cover anything from a flat to a mansion. What matters is that it has genuinely been your residence.
That said, there are situations where the position becomes more complicated. For example, you may:
- Own more than one property and need to decide which one counts as your ‘main’ residence.
- Have let out the property, either in whole or in part.
- Used part of the home exclusively for business purposes.
- Been absent from the property for a long period(s).
In each of these cases, the amount of PRR available can change, which is why tailored advice is so important.
What are ‘actual’ and ‘deemed’ periods of occupation?
When working out the PRR available, HMRC will look at the periods you actually lived in the property. These are your actual periods of occupation.
There are also deemed periods of occupation. These are times when you were not physically living in the property, but the rules treat you as if you were. For example, certain periods spent working away from home may qualify, as can the final months of ownership before the property is sold.
The distinction between actual and deemed occupation can make a real difference to how much relief you are entitled to. Getting it right can save a significant tax bill.
Why speak to an adviser?
Although the broad concept of PRR is fairly straightforward, the detail can quickly become complex. Small changes in timing, use of the property, or periods of absence can strongly impact the calculations involved.
If you are planning to sell a property that has not been your home for the entire time you have owned it, it is worth reviewing your position in advance. A clear understanding of the relief available can give you peace of mind and help you plan with confidence.
Considering a property sale?
If you would like to explore whether PRR could apply to you, just get in touch with our team. We will look at your circumstances and give you practical guidance on the best way forward.
