Private Residence Relief: Are Your Periods of Absence Eligible?
Private Residence Relief (“PRR”) provides a relief from Capital Gains Tax (“CGT”) on the sale of a property which is or has been your only or main residence at some point during your period of ownership.
Generally, if the property was your only or main residence for part of your ownership, only this part is relieved from CGT (in addition to the last 9 months of ownership which is treated as ‘deemed occupation’ in any case).
However, there are also some specific instances where an absence from your only or main residence may still be eligible for PRR.
Absences from a property and deemed occupation
If you have lived in a property at some point as your only or main residence, you leave the property to live elsewhere, and then later return to use the property as your only or main residence again, there are some circumstances when the period of absence may be classed as ‘deemed occupation’ when calculating your eligibility for PRR.
The instances where this may apply are as follows:
- You are abroad by reason of your employment (unlimited time period);
- You are absent from the property as a result of working elsewhere, either as an employee or a self-employed trader (up to a maximum of four years);
- You are absent from the property for any reason up to a maximum of three years.
A period of absence would also be treated as deemed occupation if you are living with your spouse/civil partner who meets either condition 1 or 2.
These periods of deemed occupation apply cumulatively, which means that there could be a longer period of deemed occupation if two or more periods are added together.
It should be noted that these periods will only be classed as ‘deemed occupation’ if you do actually return to living in the property as your only or main residence after the period of absence. If you do not, then the relief will not be available unless you meet either condition 1 or 2 and are unable to reoccupy the property because the situation of your place of work or the terms of your employment require you to work elsewhere (there are some complexities regarding these conditions, so expert tax advice should be taken to ensure you qualify).
If you have been absent from your property for the above reasons, this could be a very valuable consideration when calculating your eligible periods for PRR and your corresponding CGT liability, possibly even reducing this to nil.
Delay in taking up residence
Furthermore, under the Extra Statutory Concession (“ESC”) D49, if you buy a house that becomes your only or main residence but you are unable to move in straight away because alterations or decorations need to be carried out, PRR relief should be available for the period of absence prior to your occupation if it does not exceed 12 months.
Even if the period does exceed 12 months, HMRC accept that the period may be extended for up to 2 years if there are good reasons for this that are outside of your control.
According to HMRC’s application of the ESC D49, if the period exceeds 12 months (or 2 years if there is a good reason), no part of the period is eligible for PRR. However, the First Tier Tribunal (“FTT”) recently found that HMRC’s application of ESC D49 was incorrect and suggested that HMRC’s guidance should be revised to reflect the “true position” (for example; if an individual held a parcel of land for 7 years prior to taking up residence, then up to 2 years of the 7 years could receive PRR under ESC D49 where the relevant conditions have been met.) Although decisions of the FTT do not generally create a binding legal precedent, this may be significant for taxpayers because FTT decisions can be influential on other decisions of the courts and tribunals. Please see our previous blog for further information on this.
The rules in relation to calculating eligible periods for PRR can be complex – contact us now to make sure you are claiming your maximum entitlement and we will make sure that you are not paying more tax than is necessary.