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Landlord Insider
On the Landlord Insider blog, you’ll find some excellent resources for landlords of all sizes. From the latest landlord news, to professional advice, tips and guides for landlords, there’s something for everyone. Brought to you by the excellent team behind the Landlord Vision property management software.

What Does Private Residence Relief Do?

Small fantastic island with a house and backyard in women's hands.

Our sister site Tax Insider helps landlords and other taxpayers to understand taxation matters and to reduce their tax burdens. In this guest post they explain Private Residence Relief and what you need to know about it.  

It has been reported that, between 1990 and 2015, the average UK house price almost trebled in value, from a little under £70,000 to more than £200,000. It would clearly be unfair for someone to suffer Capital Gains Tax (CGT) on the uplift in value by comparison against those historic costs, if and when they came to move to a new house. (Having said that, most other assets held by individuals, including investment/rental properties, are now exposed to CGT on simple price inflation, following the abolition of Taper Relief for CGT purposes from 2008).  

What the vast majority of homeowners don’t realise is that, while selling your own home can automatically qualify for CGT relief, that relief does NOT always cover 100% of the capital gain, and in fact it is NOT always available. 

The basic aim of Private Residence Relief, (also known as Principal Private Residence Relief, or Only or Main Residence Relief), is to ensure that people are not caught by a CGT charge when they sell their home – or their main home if they have more than one. The main aims of this report are to get the best use out of this valuable relief, while not falling foul of the several restrictions that can apply. 

Sting In The Tail… 

Although it is rarely seen in practice, one unfortunate consequence of being eligible for PPR is that any loss on a disposal of a qualifying main residence is not an allowable loss, to the extent that any gain would have been relieved by PPR (The Taxation of Chargeable Gains Act (TCGA) 1992 s 16 (2)). 

Basic Restrictions 

There are important restrictions/exceptions to this general rule, such as the effects of: 

  • intervening periods of absence; 
  • ownership prior to (or following) occupation as the main residence; 
  • letting the property out; or 
  • use in a business. 

Each of these (or a combination) can serve to restrict the benefit of the relief, although the rules often allow some flexibility.  

Intention Counts 

There is a further exception, which is that a property acquired wholly or partly for the purpose of making a gain on its disposal is not relieved under the PPR rules (TCGA 1992 s 224 (3)). The restriction also applies when a residence is subsequently developed in order to make a gain on disposal, as distinct from improving the property the better to enjoy living in it. Given that most people might expect or at least hope to make some gain on the disposal of their property – particularly after ‘doing it up’ – then, interpreted strictly, this could be quite problematic and might even put something of a dent in the steady stream of home improvement television programmes. 

Fortunately, HM Revenue & Customs (HMRC) has adopted a pragmatic approach and as per their Capital Gains Manual (at CG65210):  

‘…It would be unreasonable and restrictive to apply the legislation in this way. The subsection should only be taken to apply when the primary purpose of the acquisition, or of the expenditure, was an early disposal at a profit.’ 

One At A Time – In Theory… 

The relief is basically only available in respect of the main residence so that, in theory, the relief is not intended to apply to several properties at once. Notwithstanding that, there is some scope within the rules to benefit from overlapping periods of relief, and there is planning that orients around this part of the regulations – although opportunities have been partly curtailed following changes made in the last few years. Also, where there is more than one residence, there may be opportunities to benefit from the flexibility available as to deciding which property is in fact the main residence at a particular time: it isn’t always as obvious as you might think, and actually you might be able to choose (and where you can choose, you probably should). 

So, What Is A ‘Residence’? 

The legislation does not define a ‘residence’ in this context, so it is open to interpretation and it seems that the courts have accepted the word’s dictionary definition.  

There are in fact two separate sections in HMRC’s manual about the meaning of residence: in previous Tax Insider publications we have often warned that the manuals are only HMRC’s position and not the final word, and here is an example of where HMRC first says what it thinks, and then grudgingly reports what judges have actually decided. 

The first (at CG64427) is HMRC’s position on the meaning of ‘residence’, and it says it is ‘…the dwelling in which that person habitually lives…’ It would be easy to infer from that statement that there can be only one residence at any given time, which would be incorrect, since the legislation itself makes it clear that there can be more than one residence at a time (otherwise there would be no facility in the legislation to choose which is one’s ‘main’ residence). 

The next section (also duplicated at CG64435) goes on to discuss ‘judicial interpretation’ of the definition and includes, ‘…a residence is a place where somebody lives…’, and ‘…even occasional and short residence in a place can make that a residence’. Courts and tribunals have often been more disposed to accept that a property fulfils the definition of ‘a residence’ than has HMRC. 

Note that even a rented property can comprise a residence, and that the rules do not ignore overseas properties, which can also count as residences, and even qualify for PPR. 

Actual Occupation Is Critical… 

One area in which the courts seem more frequently to have decided in favour of HMRC is that, in order for a property to be eligible, it must generally at some point have been physically occupied by the claimant, as their residence, in the period of ownership.  

This might seem straightforward, but simple occupation is not enough: the quality of the occupation must be adequate for it to be considered a residence. However, the length of the period of actual occupation is not necessarily critical, provided that the individual can demonstrate that, at the outset, the occupation was intended to be more than just temporary. 

…Except When It’s Not! 

There are some rare cases where actual physical occupation as a residence is not necessary to establish a valid claim for PPR. These orient around ‘job-related accommodation’ which is carefully defined and applies in circumstances where someone is provided with accommodation for the proper performance of the duties of the post, or similar. Practically speaking, the role has to be very closely linked to a particular location, such as with a manager living over a public house, a minister of religion living in a vicarage, etc.  

In those cases, the individual can acquire another property and, provided he or she can demonstrate an intention to occupy it as a residence in future, it may be treated as the main residence if desired (and notified to HMRC) – even if that intention subsequently changes and the property is sold without ever having been occupied. 

At the time of writing, draft legislation in Finance Bill 2020 updates the provisions for job-related accommodation so that it may also apply in cases where members of the Armed Forces live in accommodation subsidised by the MOD under its “Future Accommodation Model”. 

Practical Tip 

  • Private Residence Relief is potentially very useful to people who own more than one residential property; renting a property out doesn’t necessarily preclude the relief. 
  • However, an appreciation of the relevant rules, and strategic planning, are essential to ensure that the relief is secured – keeping documentary evidence of having occupied a property as a residence can be absolutely vital to a successful claim. 

Written by Lee Sharpe 

Lee is a creative Chartered Tax Adviser with  20 years’ experience of advising property investors and family businesses on tax matters. 

He is also an experienced tax writer: As well as writing for, Lee is a lead writer for Property Tax Insider ( and its sister publications, and writes on tax matters for Bloomsbury Professional publications. He has written a number of specialist property tax saving reports that are available through the Tax Insider website. 

Tax Insider publishes monthly newsletters and reports for everyone with an interest in responsible tax saving, including professional advisors, landlords, property investors, business owners, and general UK taxpayers. For more information and the latest property tax saving tips, visit the Tax Insider website.

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