Private residence relief (individuals) - introduction
The purpose of private residence relief is to relieve a person selling their home of a charge to capital gains tax so that they are left with sufficient resources to buy another home of the same value. As well as applying to the disposal of a UK residential property by a UK resident individual, it can also apply to:
- the disposal by a UK resident of a residential property outside the UK; and
- the disposal by a non-UK resident of UK residential property.
After April 2015, to claim the relief in either of the above cases, the individual must either be tax resident in the country where the property is situated or spend at least 90 days in the tax year in one or more dwelling houses in the country where the property is situated.
The relief is not available to a company and applies only to disposals by individuals, trustees and personal representatives. This planning applies only to a sale of a UK residential property by a UK resident individual.
The relief applies on the disposal of an interest in:
- a dwelling-house, or part of a dwelling-house, which was the individual's only or main residence at some time during their period of ownership; and
- land which is occupied as the garden or grounds of the dwelling-house at the date of disposal.
HMRC provides examples of disposals which might give rise to a capital sum, and therefore a chargeable gain to which the relief could apply, including:
- granting of a lease or sub-lease;
- assigning a lease;
- surrendering a lease or rights of occupation;
- granting an easement;
- releasing a restrictive covenant;
- receiving compensation or insurance for the destruction of the property;
- surrendering an interest in a co-ownership housing association; or
- receiving compensation or damages for a cause of action.
They also give examples of disposals which, although connected with property are not in themselves disposals of an interest in property, and which do not, therefore, attract relief. These include:
- the disposal of a right to unquantifiable future consideration for the disposal of part of a residence (a Marren v Ingles right);
- the disposal of shares in a company which owns the person's residence;
- the receipt of a forfeited deposit
- the disposal of shares in a company set up by a residents association.
An exception is provided by TCGA 1992, s. 225C where a Marren v Ingles right is disposed of as part of an employee relocation scheme, under which the employee sells their home to the company and receives the right to a share in the profit when it is sold to a third party. The relief applies provided all the conditions for it are satisfied and the individual receives a share of the future profit within three years of the initial disposal to the company.
Two changes to private residence relief were announced in Budget 2018, both to take effect from April 2020. The changes are that:
- lettings relief will be available only to those who share occupancy with a tenant, and
- the final period exemption will be reduced from 18 months to 9 months (although the special rules that exempt the final 36 months for those in or moving into care homes and people with a disability will remain the same).
The government is consulting on the changes.
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