Private Residence Relief (PRR) to Reduce Capital Gains Tax

Simon Misiewicz

Expat & Property Tax Specialist

3rd March 2022

What is Private Residence Relief (PRR) is a relief applied when you sell a home.

Private Residence Relief also referred to as PRR provides a Capital Gains Tax (CGT) exemption for the time they lived in the property (home). There is an additional nine (9) months CGT allowance if you moved out of the property and later sold it. The United Kingdom's Capital Gains Tax is levied on the profit made when selling assets like property or investments. The tax rate varies based on the individual's income tax band, with specific reliefs and exemptions available in certain circumstances. Please note that the annual CGT exemption is £6,000 for 2022/23 and £3,000 for 2023/24

What is Private Residence Relief (PRR)? This additional relief may be used to reduce CGT with Capital Gains Tax (CGT) annual allowances.

It is important to point out that you do not pay tax for the period you have lived in the property.

HMRC states that there are periods when you are absent from a property where you will qualify for Private Residence Relief. These include:

– The period you lived in the property as your primary and only residence

– The final nine months of your period of ownership always qualify for relief (even if you didn’t live there)

Move back into a home to extend your Private Residence relief (PRR)

Private Residence Relief may also be extended for several reasons to help you understand the answer to the question “how long do I need to live in a house to avoid UK CGT.”

– 12 months, you do not occupy your new home when you acquire it because you are not able to sell the old home

– 12 months, you do not occupy your new home because you are waiting for the completion of refurbishment on the new property

–  36 months for any reason of absence (so long as both sides of the absence period you do live in the home, i.e. this relief requires you to move back in after you leave at some point)

–  48 months of absence (again, you must move back in after the period of absence) during which the distance from your place of work prevents you from living at home, or your employer requires you to work away from home to do your job effectively

–  Unlimited absence where your employment requires you to work overseas (again, you must move back in after the period of absence unless, for example, you remain permanently employed overseas and sell the home whilst permanently employed overseas)

The house must be your main home for you to benefit from Private Residence Relief (PRR). It is important for you to use your private residence relief to save CGT where possible.

A claim for Private Residence Relief can be complicated if you own multiple properties or are developing properties.

To claim Private Residence Relief (PRR), you must own the freehold or leasehold of the house, which must have been occupied as a dwelling or occupied as your only or primary residence.

The relief does not apply to commercial property.

Private Residence Relief (PRR) covers the building and a permitted area of up to 1.25 acres of garden and grounds, including outbuildings.

If you own two or more homes, you will need to make an election to the HMRC if you have two homes that qualify for Private Residence Relief to say which home is your principal private residence.

It is possible to ‘flip’ homes to avoid CGT by making elections at strategic times, but this needs to be carefully considered with your accountants. HMRC may look at the flip and try to charge income tax and class 2 and class 4 national insurance on the profit made.

It is important to work with a CGT specialist. Our UK landlord accountants will use private residence relief to help you reduce CGT.


A note on Capital Gains Tax when selling a house

If you’re selling a second home or buy to let, you’ll have to pay CGT on gain, but you might get Private Residence Relief depending on whether you have ever lived in the property.

You would not get any CGT relief if you bought the house to make a ‘gain’, i.e. as an investment or for business use.

The relief you get as a landlord depends on the financial gain you make from selling your house and the amount of time you’ve lived there for.

The relief can be very straightforward if you own one home at a time and have the required evidence to show that you meet all the qualifying conditions.


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