CGT: Practical points around private residence relief (PRR)

Private residence relief (PRR) has the ability to make a financial gain on a property sale completely exempt from Capital Gains Tax (CGT).

This occurs when it can be demonstrated that the dwelling was the taxpayer’s main residence. So clearly it is of interest to all property owners who decide to sell and subsequently make a profit. Despite such a valuable tax relief though, the legislation is considered to be vague and causes some issues in interpretation. For starters, there is no attached definition for the word “residence” and HMRC only indicates that it should be given its “ordinary meaning”, i.e. “the dwelling which a person habitually lives, in other words, his or her home”.

However, several cases have been overturned when taken to tribunal and PRR not allowed due to a few factors:

  • Lack of permanence with regards to the residence
  • Lack of continuity or expectation of continuity to the residence
 

Practical points to note

1) Simply occupying a property does not mean it can be classified as a “residence” for PRR. The nature, quality, duration and overall circumstances all have a part to play in justifying the position. 2) Evidence will be required to represent that when occupying the property there was a degree of permanence with the decision. An example of this is if a property is purchased, occupied but then sold within say a month, as this shows a lack of “permanence”. Similarly, if a property is purchased and then immediately put up for sale, then occupied whilst the sale goes through, this demonstrates a lack of continuity. Figurit can help with the details around CGT and PRR, discussing with you in person how to maximise this tax relief and interpret the legislation. Call today to discuss with one of our tax advisors. T: 020 7376 9333