Principal Private Residence Relief (PPR Relief)
If you own your own home, there is normally no Capital Gains Tax (CGT) liability to pay on the sale of the property. This applies if two conditions are met:
- The property is the sellers only home, or main residence. If the seller owns a second property, the following applies to the property designated their PPR.
- The property must be used only as a home, and nothing else.
If the property is not covered under the above-mentioned criteria, then there will be CGT to pay. However, you will be eligible to various reliefs to reduce the liability to pay.
- The first year of ownership is eligible for full relief.
- Similarly, the final three years of ownership are eligible for relief if you have lived in the property at any point during ownership.
- If you are absent from the property for reasons of employment and you either:
- Carried out all of your work or duties overseas or
- The distance from work or requirements of the job stopped you living at home, and you were absent for less than 4 years.
- The house must also be your only or main home prior to and after your period of work.
- You may get the full relief for any period of absence (up to 3 years) if you are not eligible to PPR relief on any other property during that time, and you lived in the property before and after your period of absence.
If there is a loss on the sale of the property, it is not allowed unless there is a non-qualifying period. If the loss is allowed, it is treated like any other capital loss and can offset any capital gains.
If the property, or part of the property, is let out, then there are other reliefs available, provided that the property was occupied by the owner at some point during the ownership period.
The relief is equal to the lower of:
- The amount of private residence relief
- The chargeable gain arising from the part of the property that was let out.
How the reliefs are applied:
First, calculate the period that the property was owned for. Each relief is applied by reducing the fraction to be applied to the gain:
For example: Over a period of 15 years, a gain was made of £150,000 (in 2012). The owner was employed abroad for 3 years, so the total reliefs available are:
- The first year
- The final three years
- The three years spent employed abroad.
So the total number of years eligible for full relief is 7.
Therefore, the total gain liable to CGT is reduced by (7/15) * £150,000, to £80,000.
The owner is a higher rate taxpayer, so the total capital gains tax for the year is:
(£80,000 * 28%) – £10,600