Reminder of Changes to Principal Private Residence (PPR) relief from 6 of April 2020

PPR relief has been a tax relief against the gains arising on the sale of a property that is or has been an individual’s only or main residence.

New rules came into effect in April 2020, introducing the tightening of two common extensions to the relief which is likely to increase the number of sales of homes liable to capital gains tax, or where more tax will be due.

Final period of ownership

From April 2020 there have been further changes to the final period of “deemed occupation”. This has been reduced down form the final 18-months (previously 36-months) to only the final 9-months of ownership.

However, the final 36 months will continue to qualify for the disabled and those in a care home.

Lettings relief

This relief can cover gains of up to £40,000 per owner, but it is only available if the property has been the owner’s main home for a period.

The relief is also capped at the amount of PPR relief due for the period of actual occupation by the owner.

From April 2020 lettings relief can only be claimed if the owner of the property is in residency whilst rooms are occupied within the house and let to unconnected persons (the occupier effectively has a lodger in their main residency qualifying for PPR).

The ability to claim lettings relief where the whole property has been let out is totally abolished and these periods will be fully chargeable to CGT even where the property was let prior to 6 April 2020

Period of Absence

In addition to the above to the above, there is also a further relief for individuals who have a period of absence from their PPR.

Qualifying periods of absences can be claimed on your PPR if HMRC conditions are met under s223(3) TCGA92. 

In most cases, these additional periods can only be claimed when both before and after the period of absence there is a time where the house was the owner’s main residence (unless they were prevented from living there as a consequence of their own or legal partners employment making them live elsewhere – see below).

The periods of residence do not have to be immediately before and after the period of absence.

The legislation does not specify how long the period of residence must be. HMRC guidance explains it as quality of occupation rather than length of occupation. You cannot set a minimum period of occupation which will be enough to allow relief for a period of absence.

HMRC explains that if a house has been used as its owner’s main residence, the final period of ownership will always qualify for relief. That does not mean that the final period of ownership will qualify as a period of main residence after a period of absence and therefore allow relief for that period of absence, instead it is classed a period of deemed occupation.  The period of absence must be followed by an actual period of use of the dwelling-house as its owner’s only or main residence.

There are two circumstances summarised below where reoccupancy cannot be undertaken and a period of absence will still qualify:

• Where the individual is prevented from resuming residence as a consequence of the situation of their place of work or due to a condition imposed on them by the terms of their employment requiring them to reside elsewhere to secure the effective performance of their duties, or

• Where the individual lived with a spouse or civil partner who was prevented from resuming residence as a consequence of the situation of their place of work or due to a condition imposed on them by the terms of their employment requiring them to reside elsewhere to secure the effective performance of their duties.

 Use of residence during period of absence

It does not matter how the residence is used during a qualifying period of absence. For example, it may be let out at a full market rent without any loss of relief under this section.