I was asked about Principle Private Residence (PPR) relief the other day by a Financial Adviser who is dealing with a client of ours, so I thought it’d be good to briefly run through this. Just to set the scene I received the following:
” With regard to Capital Gains Tax on second homes, our client was of the understanding that if she were to move into a house she had previously been letting out for 18 months that she would receive full CGT relief. I thought the CGT relief for a main residence would only apply to the period you had been living there and that you would still be liable for gains in the period the property was being let. Can you let me know if I am understanding this correctly?”
When you live in a property you get PPR relief as our friend states above. However exemption is available for the following periods of ‘deemed occupation’.
To be allowable, the last three items on the list must be preceded and followed by a period of actual occupation. No such restriction applies to the 18 month rule at the top of the list. Even for the last 2 items above, the condition of actual occupation is relaxed where an employer requires the owner to work elsewhere immediately, making it impossible to resume occupation.
Where a part of a residential property is used exclusively for commercial purposes; any gain must be apportioned between the part used as a main residence & the part used for a trade, vocation or profession. It should be noted that the PPR restriction only applies to a part of the property that used exclusively for the purposes of the trade, profession or vocation. If a home office was used during the evening for kids to do their homework in for example; this would preserve PPR relief.
There have been many cases where people have renovated a house and moved in for a while so they can claim PPR relief. The capital gains regime blocks PPR relief where the owners primary goal is to make money from a property. In reality of course no one would spend any money on a property if they thought it might be worth less if they sold it. In reality HMRC would look at other factors in order to identify trading activity of this kind. For example does the taxpayer have another home, do they pay council tax there, did they furnish the home or change addresses with the bank or the DVLA.
I should say (and of course I would say this) this can be a tricky area and professional advice should be sought.