Private Residence Relief

Private Residence Relief (PRR), also known as Principal Private Residence Relief, is a tax relief scheme in the UK that can reduce or eliminate the Capital Gains Tax (CGT) liability when you sell or dispose of your main residence (your home). It is designed to prevent homeowners from paying CGT on the sale of their primary residence, recognising that this is not typically seen as a way to make a profit.

Full relief: To qualify for full PRR, four conditions must be met: (a) the dwelling house must be your only or main residence throughout your period of ownership; (b) you have not been absent from the property for extended periods (with some allowed exceptions); (c) the garden or grounds, including any buildings on them, should not exceed a certain size; and (d) no part of your home has been used exclusively for business purposes. However, working from home using a room for both business and non-business purposes does not prevent you from getting full relief.

Partial relief: If you do not meet all of the conditions for full relief, you may still be eligible for partial relief under specific circumstances. The amount of relief you receive depends on the conditions you meet. For example, if you have let out part of your home while you lived there, you need to work out what proportion of your home you lived in, and you will only get PRR on that proportion, but you may get Letting Relief to cover the proportion you let to a tenant. To be specific, if you rent out a large bedroom to a tenant, and the bedroom amounts to 10% of your home, your PRR will be reduced by 10%. However, if you lived in your home at the same time as the tenant, you may qualify for Letting Relief which is capped at £40,000.

Additional properties: If you own more than one property, PRR can only be applied to your main residence. You will need to nominate your main residence, and you will be liable for CGT on any other properties you sell. If no nomination is made, the question of which is your main residence will be determined on the facts. Married couples and civil partners can generally only claim PRR for one property at a time as their main residence. However, if they are separated and each of them have a different only or main residence, they each may be entitled to relief on any gains arising on the disposal of their main residences.

Period of ownership: Your period of ownership begins when you first acquire the dwelling house and ends when you dispose of it. The final 9 months of ownership always qualify for relief, and this period is extended to 36 months for disabled individuals or residents in care homes.

Periods of absence: Some periods of absence may still qualify for relief, such as short-term absences for specific reasons like work-related travel. These periods are considered as periods of actual occupation when calculating the fraction of gain eligible for relief. For example, if you live in job-related accommodation and also own a dwelling house intended to be your main residence, you can treat the dwelling house you intend to occupy as actually being occupied by you, even if you don't live there. This allows you to claim relief on the gain from its sale.

Garden or grounds: Relief also applies to the sale of land occupied as your garden or grounds, up to a certain size, at the time of disposal. To be specific, if your garden and grounds do not exceed half a hectare (which is a little over one acre), you are entitled to relief for all of it. Buildings within this garden or grounds area also qualify for relief. However, if your home includes several outbuildings, any relief available for your dwelling house will not extend to outbuildings situated outside this half a hectare.

PRR can reduce or eliminate the CGT that would otherwise be payable when you sell your main or only residence. It is designed to prevent homeowners from incurring CGT on the sale of their primary residence, which is considered a personal and not a business asset.