Personal Private Residence

Adopting a property as a personal private residence

Lets start by saying this is a complicated area!

A Principal Private residence is CGT-free only IF two conditions are fulfilled :-

1. the property must not have been purchased for the sole reason of making a profit and

2. that to be exempt the property (dwelling house) must be an individual’s (or married couple’s) only or main residence throughout the period of ownership. (A married couple are only allowed one ppr between them)

There is no minimum period of occupation defined in the legislation to make a property into a residence.
However, if you only occupy a property for a short period of time, HM Revenue & Customs are likely to question your motives for purchasing the property and see if point 1 above applies. The longer you actually spend living in the property the better (from a practical point of view). In some circumstances, it might also be a good idea to gather some evidence of your actual residence.

Where there is more than one property used as a residence the situation is more complicated.

Where an owner occupies a property as a residence, even if not as his or her main residence, then PPR is available – subject to some provisos.

Only one property can be your PPR at any point in time. It is up to you (the owner) to nominate one of the eligible properties as your main residence. You must make this election within two years of the change in your situation. If you don’t make the election then HMRC can determine which is your ‘main’ residence based upon where you spend the most time.

So from the date you have two properties available and used as a residence you have 2-years to nominate one of them as your PPR. Another 2 year period would commence if a third residence entered the equation.
The election time limit is important because, if a valid election is made within the 2-year time limit, it allows later revisions to the election to be made. If there is no valid election in the first place, then later revisions in respect of the same combination of properties will be ignored, and HMRC will determine which property was your main residence by reference to the facts, i.e. whichever was ‘the most occupied.’

The gain arising on the disposal of a property is deemed to have accrued over the period of its ownership. Therefore, if you own a property for 10 years, and it has been your PPR for 5 of those years, (by election, or by determination of the Inland Revenue), then 50% of the gain will be set aside. (PPR relief is applied to the gain net of acquisition and improvement costs incurred, but before Taper Relief (TR) and the Annual Capital Gains Exemption (AE)).
It is important to note that the final 3 years of ownership of a property which has been a PPR are exempt from CGT regardless of the actual use during this period. If the property has been a PPR before the last three years, this period will be exempt – in addition to the last 3 years.

Suppose you live in Birmingham and buy a ‘holiday home’ by the coast, and (within the two year time limit) you elect for this holiday home to be your PPR, then perhaps after 1 year you decide to let it for say 6 months. As the property is let and not available to you, this means that now you only have one residence and therefore your original Birmingham home starts to qualify again as your PPR.

You effectively lose 1 years exemption out of your total period of ownership of the Birmingham property. As time goes on, 1 year as a proportion of the total period becomes less significant. There are likely to be other reliefs and exemptions available to you. (eg taper relief and annual exemptions). These exemptions could be enhanced significantly if you were to let this as residential accommodation for a period at some time in during your ownership.

On the other hand, the holiday home will now qualify for the first year due to the election. Additionally, it will also qualify for the final 3 years of the ownership. If it was also let as residential accommodation, you could also qualify for relief from gains of upto a further £40,000. If owned jointly with another, say your spouse, the lettings relief of up to £40,000 is available to each person.

Lets start by saying this is a complicated area!

A Principal Private residence is CGT-free only IF two conditions are fulfilled :-

1. the property must not have been purchased for the sole reason of making a profit and

2. that to be exempt the property (dwelling house) must be an individual’s (or married couple’s) only or main residence throughout the period of ownership. (A married couple are only allowed one ppr between them)

There is no minimum period of occupation defined in the legislation to make a property into a residence.
However, if you only occupy a property for a short period of time, HM Revenue & Customs are likely to question your motives for purchasing the property and see if point 1 above applies. The longer you actually spend living in the property the better (from a practical point of view). In some circumstances, it might also be a good idea to gather some evidence of your actual residence.

Where there is more than one property used as a residence the situation is more complicated.

Where an owner occupies a property as a residence, even if not as his or her main residence, then PPR is available – subject to some provisos.

Only one property can be your PPR at any point in time. It is up to you (the owner) to nominate one of the eligible properties as your main residence. You must make this election within two years of the change in your situation. If you don’t make the election then HMRC can determine which is your ‘main’ residence based upon where you spend the most time.

So from the date you have two properties available and used as a residence you have 2-years to nominate one of them as your PPR. Another 2 year period would commence if a third residence entered the equation.
The election time limit is important because, if a valid election is made within the 2-year time limit, it allows later revisions to the election to be made. If there is no valid election in the first place, then later revisions in respect of the same combination of properties will be ignored, and HMRC will determine which property was your main residence by reference to the facts, i.e. whichever was ‘the most occupied.’

The gain arising on the disposal of a property is deemed to have accrued over the period of its ownership. Therefore, if you own a property for 10 years, and it has been your PPR for 5 of those years, (by election, or by determination of the Inland Revenue), then 50% of the gain will be set aside. (PPR relief is applied to the gain net of acquisition and improvement costs incurred, but before Taper Relief (TR) and the Annual Capital Gains Exemption (AE)).
It is important to note that the final 3 years of ownership of a property which has been a PPR are exempt from CGT regardless of the actual use during this period. If the property has been a PPR before the last three years, this period will be exempt – in addition to the last 3 years.

Suppose you live in Birmingham and buy a ‘holiday home’ by the coast, and (within the two year time limit) you elect for this holiday home to be your PPR, then perhaps after 1 year you decide to let it for say 6 months. As the property is let and not available to you, this means that now you only have one residence and therefore your original Birmingham home starts to qualify again as your PPR.

You effectively lose 1 years exemption out of your total period of ownership of the Birmingham property. As time goes on, 1 year as a proportion of the total period becomes less significant. There are likely to be other reliefs and exemptions available to you. (eg taper relief and annual exemptions). These exemptions could be enhanced significantly if you were to let this as residential accommodation for a period at some time in during your ownership.

On the other hand, the holiday home will now qualify for the first year due to the election. Additionally, it will also qualify for the final 3 years of the ownership. If it was also let as residential accommodation, you could also qualify for relief from gains of upto a further £40,000. If owned jointly with another, say your spouse, the lettings relief of up to £40,000 is available to each person.

Link to Calculator to assist with calculating the gain on a property disposal

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