Private residence relief – or principal private residence relief – applies for capital gains tax purposes if the dwelling house or part of the dwelling house has been the individual’s only or main residence during some period of ownership
If during the period of ownership the dwelling house or part of the dwelling house has been used exclusively for some other purpose, then the relief is reduced, although the last 36 months of ownership will be treated as if it was the individual’s only or main residence even if in fact it was not so used.
However, this final period exemption has been reduced from 36 months to 18 months from 6 April 2014; this was announced in the Autumn Statement on 5 December 2013.
A further relief may be available where private residence relief is restricted because some or all of the dwelling has been let as residential accommodation (TCGA 1992 sec223(4)).
Example 1:
(last 36 months treated as eligible for private residence relief)
A dwelling house which is owned by husband and wife Mr and Mrs Green in the proportion 40 per cent by husband and 60 per cent by wife is sold in March 2014 (contracts exchanged on 14 March and completion on 1 April) for £600,000 net of allowable expenses.
The house cost £400,000 including the allowable expenses; it was purchased in 2004, with contracts exchanged on 15 March 2004 and completion on 3 May 2004.
Mr and Mrs Green lived in the house as their principal private residence from 3 May 2004 until 15 March 2007; it was then let to tenants until 31 December 2012, then was empty until it was sold.
The capital gains tax position is as follows:
| Total (£) | Mr Green (£) | Mrs Green (£) | |
|---|---|---|---|
| Sale proceeds | 600,000 | 240,000 | 360,000 |
| Cost | -400,000 | -160,000 | -240,000 |
| Net gain | 200,000 | 80,000 | 120,000 |
| Less: Private Residence Relief ((3+3)/10) | -120,000 | -48,000 | -72,000 |
| Gain arising by reason of letting | 80,000 | 32,000 | 48,000 |
| Letting relief, lower of: | |||
| 1. Private residence relief | 48,000 | 72,000 | |
| 2. Gain by reason of letting | 32,000 | 48,000 | |
| 3. Statutory amount | 40,000 | 40,000 | |
| Lower of above three is | 32,000 | 40,000 | |
| Chargeable gain | NIL | 8,000 |
In the above calculations, the period qualifying for private residence relief is the period when the house was occupied as a principal private residence plus the last 36 months.
The period of ownership is from date of exchange on purchase to date of exchange on sale.
If either Mr or Mrs Green were in business while they were living in the house, they may have used part of the house for business purposes such as one room being used as an office.
If that room was used exclusively for business purposes then the private residence relief would be restricted, based on the period used exclusively for business purpose and, say, on the size of that room compared to the size of the house.
However, if the room was used for business purposes but not exclusively (ie some non-business use and some business use), then there will be no restriction of the private residence relief for this business use (see CG64663).
Husbands and wives or civil partners can elect for property held in their joint names to be held in any proportion if that couple live together; this can be done using HMRC form 17.
Example 2:
(last 18 months treated as eligible for private residence relief, sale after 5 April 2014)
A dwelling house which is owned by husband and wife Mr and Mrs Green in the proportion 40 per cent by husband and 60 per cent by wife is sold in April 2014 (contracts exchanged on 14 April and completion on 1 May) for £600,000 net of allowable expenses.
The house cost £400,000 including the allowable expenses and was purchased in 2004, with contracts exchanged on 15 April 2004 and completion on 3 June 2004.
Mr and Mrs Green lived in the house as their principal private residence from 3 June 2004 until 15 April 2007; they then let the property to tenants until 31 December 2012, then the property was empty until it was sold.
| Total (£) | Mr Green (£) | Mrs Green (£) | |
|---|---|---|---|
| Sale proceeds | 600,000 | 240,000 | 360,000 |
| Cost | -400,000 | -160,000 | -240,000 |
| Net gain | 200,000 | 80,000 | 120,000 |
| Less: Private Residence Relief ((3+1.5)/10) | -90,000 | -56,000 | -34,000 |
| Gain arising by reason of letting | 110,000 | 44,000 | 66,000 |
| Letting relief, lower of: | |||
| 1. Private residence relief | 36,000 | 54,000 | |
| 2. Gain by reason of letting | 44,000 | 66,000 | |
| 3. Statutory amount | 40,000 | 40,000 | |
| Lower of above three is | 36,000 | 40,000 | |
| Chargeable gain | -8,000 | 26,000 |
In the above calculations, the period qualifying for private residence relief is the period when the house was occupied as a principal private residence plus the last 18 months.
The period of ownership is from date of exchange on purchase to date of exchange on sale.