This website uses cookies to store information on your computer. Some of these cookies are used for visitor analysis, others are essential to making our site function properly and improve the user experience. By using this site, you consent to the placement of these cookies. Click Accept to consent and dismiss this message or Deny to leave this website. Read our Privacy Statement for more.
News & Portal: HMRC

Private Residence Relief : HMRC Helpsheet

28 August 2020  
Posted by: HMRC
Share |

By HMRC Updated 19 August 2020

Contents

  1. How the relief works 
  2. Who qualifies for relief
  3. Capital Gains Tax for non-residents on UK residential property
  4. Definition of terms
  5. Letting Relief
  6. Calculating the gain where only partial relief is due
  7. Residence provided for a dependent relative
  8. Private Residence Relief on the disposal of settled property
  9. Personal representatives
  10. How to claim relief
  11. Contact 

This helpsheet explains the relief available on the disposal of your private residence. But it’s only an introduction. If you’re in any doubt about your circumstances you should ask your tax adviser. We’ll also be pleased to help. You can also consult our Capital Gains Tax Manual which explains the rules in more detail.

This helpsheet will help you to fill in the Capital Gains Tax summary pages of your 2019 to 2020 tax return.

From 6 April 2020 the relief available on your disposal has changed. You can find out more information in the Tax when you sell your home guide and the Capital Gains Tax Manual, CG64985.

 

1. How the relief works

You would normally have to pay Capital Gains Tax (CGT) on any gain you make if you dispose of:

  • a dwelling house (which can include a house, flat, houseboat or fixed caravan) which is your home
  •  part of a dwelling house which is your home
  • part of the garden attached to your home

However, you’ll be entitled to full relief where all the following conditions are met:

  • the dwelling house has been your only or main residence throughout your period of ownership
  • you have not been absent, other than for an allowed period of absence or because you’ve been living in job-related accommodation, during your period of ownership
  • the garden or grounds including the buildings on them are not greater than the permitted area
  • no part of your home has been used exclusively for business purposes during your period of ownership

We’ve explained these definitions in the section definition of terms. If you meet all of these conditions, you will not have to pay CGT on the disposal. You will not need to complete the Capital Gains Tax summary pages of your tax return if you’ve made no other disposals or chargeable gains and do not wish to make any capital gains claims or elections. Read page 5 of the tax return guide for more information.

If you do not meet all of the conditions, you may still get partial relief under certain circumstances and you’ll need to complete the Capital Gains Tax summary pages of your tax return. This helpsheet describes the circumstances when you may get relief and explains how much relief you can deduct from any gain to calculate the chargeable gain.

Even if you meet all of these conditions, you will not get Private Residence Relief if:

  • you dispose of all or part of your garden after you’ve disposed of your home
  • you acquire a dwelling house and/or spend money on it in order to realise a gain on its disposal

For example, you may have bought the house to sell it quickly at a profit or, if you were a tenant, you may have bought out the freehold in order to increase your profit on sale. In this case, you’ll need to provide details on your tax return.

If you’ve made a loss on the disposal instead of a gain

If you make a loss on the disposal of your home and you would have got Private Residence Relief if you had made a gain, your loss will not be an allowable loss and you will not be able to offset it against any gains you’ve made. If you would have got partial relief, part of your loss will not be allowable and that part should be calculated in the same way as you would have calculated the partial relief if you had made a gain.

 

2. Who qualifies for relief

Any individual is entitled to the relief on any gain arising on the disposal of their only or main residence. This is provided that, in calculating the amount of the gain that would be a chargeable gain if the relief did not exist, no account would have to be taken of any Gift Hold-Over Relief obtained under section 260 of the Taxation of Chargeable Gains Act 1992 by any person for an earlier disposal.

Special transitional rules that may allow some Private Residence Relief to apply where Gift Hold-Over Relief is obtained for a transfer which was made before 10 December 2003. Relief under these transitional provisions must be claimed (see how to claim relief). Trustees of settled property and personal representatives may claim relief in some circumstances, as explained below. Companies are not entitled to relief.

You’re entitled to relief if you own the freehold of your home or if you’re a tenant owning a lease. You’re also entitled to relief if you jointly own the freehold or lease with someone else.

 

3. Capital Gains Tax for non-residents on UK residential property

From 6 April 2015 if you sell (or dispose of) the whole or part of an interest in a UK residential property when non-resident, you must tell HMRC within 30 days of the date of conveyance. You may have to pay CGT on any gains you make. You can find more information on this in Capital Gains Tax for non-residents: UK residential property.


4. Definition of terms

Dwelling house

Your dwelling house may be a single building, for example, a detached house. It may be more than one building, for example, a house with a detached garage. Or it may be part of a building, for example, a flat. If your home includes more than one building, for example, if it has several outbuildings, any relief available for your dwelling house might not extend to all of the outbuildings.

4.1 Example 1

Your home consists of a house, a detached garage and a granny flat near the house, half an acre (0.203 hectares) of garden and a summer house at the end of the garden. Your dwelling house is the house together with the garage and the granny flat, but excluding the summer house.

Deciding which buildings make up your dwelling house is only important if your home has a garden or grounds larger than the permitted area, see below.

If you have a single lodger, the rooms occupied by the lodger qualify for relief. If you’ve more than one lodger, or if you let part or all of your home at any time in your period of ownership, the let parts will not qualify for Private Residence Relief. However, you may be entitled to claim Letting Relief. If part of your dwelling house is used exclusively for a trade or business, that part will not qualify for relief.

4.2 Example 2

Your house consists of a shop with your living accommodation above. You’re only entitled to relief for the living accommodation. If you sell the house, you should split any gain between the gain on the shop, which may be chargeable, and the gain on the living accommodation, which will attract relief.

If you live in a fixed caravan or houseboat, you’re entitled to relief in the same way as if you lived in a house or a flat. If your home is outside the UK you may still qualify for relief.

Only or main residence

If you live in, as your home, 2 or more houses, you can only have one main residence at a time for Private Residence Relief.

You can nominate which residence is to be treated as your main residence for any period. Your nomination must be made within 2 years of the date you first have a particular combination of residences. If there’s a change in your combination of residences, a new 2-year period begins. If you do not make a nomination, the question of which is your main residence will be determined on the facts.

4.3 Example 3

In June 1992 you bought a house which became your only home. In May 2019 you bought another house which you occupied as a second home. You can nominate the second home or your original home to be your main residence. Your nomination must be made by May 2021.

If you’re married or in a civil partnership and you’re not separated from your spouse or civil partner, you can have only one main residence between you. If, when you married or registered as civil partners, you each owned a residence and you’ve continued to use both residences, you can nominate jointly which is to be the main residence, and the 2-year period for doing so begins on the date of marriage or registration as civil partners.

If you’re separated, each of you may have a different only or main residence and each may be entitled to relief on any gains arising on the disposal of the residences.You’re treated as living together unless you are separated under a court order by Deed of Separation, or are otherwise separated in such circumstances that the separation is likely to become permanent.

From 6 April 2015 additional rules apply to nominations in favour of a residence located in a jurisdiction in which you’re not tax resident. So if you’re a tax resident of the UK and have a residence in another country that you’ve previously nominated or wish to nominate as your main residence the additional rules need to be considered. Guidance is included in the Capital Gains Tax Manual.

Period of ownership

Your period of ownership begins on the date you first acquired the dwelling house, or on 31 March 1982 if that is later. It ends when you dispose of it. The final 18 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point.

If you’re a disabled person or a resident in a care home, the final 36 months of ownership may qualify for relief if you do not have any other relevant right in relation to a private residence. More detail is available in the Capital Gains Tax Manual, see CG64986.

If the dwelling house has not always been your only or main residence, you’ll need to split the gain. When calculating the proportion of the gain eligible for relief, you multiply the gain by a fraction equal to the periods of occupation (including the final 18 or 36 months where appropriate) divided by the period of ownership (both periods starting at 31 March 1982 if the house was owned before that date). You do not introduce valuations of the property at the dates of changes of use.

4.4 Example 4

You bought your house in January 2006 and sold it in January 2020. You lived in the property as your only or main residence apart from 18 months in 2007 and 2008 when you lived in a different house. So the house qualifies for relief for 150 out of the 168 months you owned it. A proportion of any gain you make from the disposal amounting to 150÷168 will qualify for relief. If you had moved out of the house at some time after July 2018 instead of in 2007 and 2008, your relief would not be restricted as this absence would have been during the final period of 18 months. If you had bought the house before 31 March 1982, the calculation above would begin from 31 March 1982 and not from when you bought the house.

4.5 Example 5

You bought your house in February 1981 and lived in it as your only home until March 1995. You then moved to a new house which became your main home but retained the first house as a second home. It was not let. You sold the first house in March 2019.

You’re entitled to relief for the period when it was your only home (counting from 31 March 1982), from March 1982 to March 1995, 156 months, plus the final 18 months of ownership, a total of 174 months. The period of ownership from 31 March 1982 to March 2019 is 444 months. The relief is 174÷444 months.

Period of absence

Some periods when you were not using the house as your only or main residence will still qualify for relief. These should be treated as periods of actual occupation when you’re calculating the fraction of any gain that qualifies for relief.

If, for up to a period of 12 months, you do not occupy your new home when you acquire it because you’re unable to sell your old home, or you need to carry out refurbishment, you can treat up to the first 12 months as if the house had been your only or main residence in that period. In exceptional circumstances, we may allow you to treat a longer period (up to a total of 2 years) in the same way. The same treatment applies when you buy land to build a house on.

4.6 Example 6

You bought a house in January 1998 but it needed major refurbishment and you could not move in until January 1999. Subsequently it was your only or main residence until you sold it in June 2019, you’re entitled to full relief.

Certain other periods of absence from your dwelling house may be treated as periods of residence if both before and after the period there’s a time when the dwelling house is your only or main residence.

If you’ve another dwelling house eligible for relief, for example a house or flat which you bought or rented as your home while absent, you’ll need to make a nomination in favour of the original dwelling house, if you want the period of absence to be treated as a period when that house was your main residence, see ‘Only or main residence’ above.

The qualifying periods of absence are:

A) absences for whatever reason, totalling not more than 3 years in all
B) absences during which you’re in employment and all your duties are carried on outside the UK
C) those totalling not more than 4 years when either

  • the distance from your place of work prevents you living at home
  • your employer requires you to work away from home in order to do your job effectively

You’ll keep the exemption for absences b. and c. if you cannot return to your dwelling house afterwards because your existing job requires you to work away again. The absences at b. and c. will also apply if the employment was that of your spouse or civil partner.

4.7 Example 7

You bought a house in 1984 and used it as your only or main residence. In 1985 your employer required you to work abroad and you did not come back to the house until 1990. You lived in the house again as your only or main residence until you sold it in 2019. You’re entitled to full relief.

Job-related accommodation

If you live in accommodation that is job-related and you also own a dwelling house that you intend to occupy as your only or main residence, the dwelling house you intend to occupy is treated as actually being occupied by you as a residence during the period in which you intend to occupy it, even if you never actually live there. This means that you may nominate that residence as your only or main residence and get relief on the whole or a part of the gain. See the paragraph headed only or main residence above. If your intention to live in the dwelling house ends, then the dwelling house is no longer treated as your residence.

Accommodation that’s job-related if it’s exempt from Income Tax for the reasons set out in Helpsheet 202 Living accommodation.

This extension of Private Residence Relief also applies if you’re self-employed. The job-related accommodation must be provided by another person under the terms of a contract that requires you to live in the property and carry on a particular trade.

Garden or grounds

You’re entitled to relief if you dispose of land that you occupy as your garden or grounds, up to the permitted area, at the time of your disposal. The garden or grounds includes the buildings standing on that land. So a building that is not part of your dwelling house can still qualify for relief if it’s within the permitted area of garden or grounds.

The garden or grounds will include any enclosed land surrounding or attached to your dwelling house and serving chiefly for ornament or recreation. However, not all land you hold with your dwelling house is treated as the garden or grounds of that residence. You’re not entitled to relief for land let or used for a business, for example, surrounding farm land. Similarly, land which at the date of disposal has been fenced or divided off from your garden for development, or has been developed or is in the course of development (for example, excavations under way for foundations, roads, services, and so on) will not qualify.

Permitted area

If your garden and grounds do not exceed half a hectare (which is a little over one acre), you’re entitled to relief for all of it. Look again at example 1 . The summer house was not part of the dwelling house. But the grounds do not exceed half a hectare and so the summer house, which stands in the grounds, will still attract relief.

If your garden and grounds exceed half a hectare, you may not be entitled to relief for all of it. The area for which you’re entitled to relief is called the permitted area. It consists of the area that’s required for the reasonable enjoyment of your dwelling house as a home. The size and character of your dwelling house must be taken into account.

If your garden and grounds exceed half a hectare, and you’ve disposed of all or part of the garden and grounds, you should:

  • enter details of the disposal and gain on pages CG 1 to CG 4
  • explain in the any other information box, box 54, on page CG 3 of the Capital Gains Tax summary pages why you think, if appropriate, all or part is exempt from Capital Gains Tax

We may ask for more details in these cases and the District Valuer will be asked to determine the size and location of the permitted area.

 

5. Letting Relief

If you only get partial relief because you’ve let some or all of your dwelling house as residential accommodation, you may be entitled to a further relief. This further relief is due where:

  • you sell a dwelling house which is, or has been, your only or main residence
  • part or all of it has at some time in your period of ownership been let as residential accommodation

The amount of relief is the lowest of:

  • the amount of Private Residence Relief already calculated
  • 40,000
  • the amount of any chargeable gain you make because of the letting

5.1 Example 8

You let 60% of your house as residential accommodation and occupied 40% as your home. You made a gain of £60,000 when you disposed of the property. You’re entitled to Private Residence Relief for 40% of the gain, which is £24,000. Your remaining gain is £36,000 and it all results from the letting. The lowest of the 3 limits set out above is the amount of Private Residence Relief and so you’re entitled to additional Letting Relief of £24,000. Your chargeable gain will be £12,000.

5.2 Example 9

You bought your house in December 2006 and sold it in December 2019 owning it for 13 years. You lived in the property as your only or main residence from December 2006 to December 2012 (6 years). It was then let as residential accommodation from January 2013 to December 2015 (3 years) and then empty until sold at a gain of £150,000. You’re entitled to Private Residence Relief for 7.5 years (6 years of residence plus the final 18 months) out of 13 years. This part of the gain is £86,539 ((7.5÷13) x £150,000). Your remaining gain is £63,461.

The lowest of the 3 limits set out above is the gain by reason of the letting £34,615 ((3÷13) x £150,000) so you’re entitled to further Letting Relief of £34,615. Your chargeable gain will be £28,846.

There are more examples in the Capital Gains Tax Manual at CG64737.

 

6. Calculating the gain where only partial relief is due

In summary, if:

  • part of your home is used exclusively for business purposes, or you’ve let part of your home, split the gain between the business part or the let part, which is chargeable, and your own living accommodation, which is exempt
  • you have not always lived in your home, other than allowed periods of absence, multiply the total gain by the fraction equal to the period you actually lived in the dwelling house plus any allowed periods of absence plus any part of the final 18 months not covered by actual occupation or allowed period of absence, divided by the period of ownership - that part of the gain will be exempt
  • you’ve had more than one home, decide whether or not the home you’ve sold has ever been your only home (a question of fact) or has been nominated at any time as your main home; multiply the total gain by the fraction representing the periods during which the dwelling house was your only or main home plus the final 18 months, divided by the period of ownership - that part of the gain will be exempt
  • you’ve let your home, do the calculations as shown in Letting Relief above and add the lowest figure to the relief you’re already getting for your home as calculated above - see the examples in CG64737 where the letting period and final period of exemption (18 or 36 months) overlap
  • you’re selling land which formed part of your garden (provided that you’re not selling the land after selling your home, and provided the land has not been divided off from your garden or developed in some way, in which case no relief is due) you’ll need to decide if any or all of the land sold is within the permitted area - if all of the land is within the permitted area, the gain will be exempt; if only part of the land is within the permitted area, you’ll have to split the gain between the land which is inside the permitted area, which is exempt, and the land outside, which is chargeable.

 

7. Residence provided for a dependent relative

In addition to the relief that may be due on disposal of your own residence, you may also be entitled to relief when you dispose of a residence which you’ve provided for a dependent relative. This relief only applies if you acquired the residence before 6 April 1988 and certain additional conditions were met.

The conditions for relief are detailed in the Capital Gains Tax Manual, see CG65550.

 

8. Private Residence Relief on the disposal of settled property

The trustees of a settlement may claim relief (see how to claim relief) if they dispose of the only or main residence of a person entitled to occupy that residence under the terms of the settlement. This is provided that, in calculating the amount of the gain arising on the disposal that would be a chargeable gain if the relief did not exist, no account would have to be taken of any Gift Hold-Over Relief obtained under section 260 of the Taxation of Chargeable Gains Act 1992 by any person for any earlier disposal.

Special transitional rules that may allow some Private Residence Relief to be claimed by the trustees apply where Gift Hold-Over Relief is obtained for a transfer to the trustees which was made before 10 December 2003. Ask us if you need more information. For advice on how this relates to your own circumstances, talk to your tax adviser.

 

9. Personal representatives

Personal representatives who dispose of the only or main residence of one or more legatees during the administration period may claim relief (see how to claim relief) if the legatee or legatees in question would be entitled to at least 75% of the proceeds of the disposal of the property (assuming that none of the proceeds are needed to meet any liabilities of the deceased person’s estate). Ask us if you need more information. For advice on how this relates to your own circumstances, talk to your tax adviser.

 

10. How to claim relief

In your computation of the gain on any relevant disposal included with the Capital Gains Tax summary pages CG 1 to CG 4, either in box 54 on page CG 3 or in your attached computation, write that ‘Private Residence Relief is claimed’ and state the amount of relief claimed. In addition enter code PRR (where Lettings Relief does not apply) or LET (where Lettings Relief does apply) in box 8.

 

11. Contact

Online forms, phone numbers and addresses for advice on Self Assessment.


Get In Touch

The ICPA
Imperial House
1a Standen Avenue
Hornchurch
Essex RM12 6AA

0800 074 2896

01708 448884

Get The ICPA App

To download the ICPA APP, just click on the image below...

Keyword Search
Follow Us

Follow the ICPA on a range of popular Social Networking websites including Facebook, Twitte and LinkedIn.