Principal Private Residence (“PPR”) relief can be an incredibly valuable Capital Gains Tax (“CGT”) relief as it can exempt all or part of a capital gain arising on the disposal of a property which has been used by the taxpayer as their main residence. 

For many, a gain on the sale of their main home will be completely exempt from CGT as it will be covered in full by PPR relief. A chargeable gain can arise, however, if the taxpayer did not occupy or was not deemed to occupy, the property for the full period of ownership.

The capital gain on the disposal of the property is calculated in the usual way. Where the property has only been occupied by the taxpayer as their only or main residence for part of the period of ownership, only part of the gain is exempt from CGT. The PPR relief available is calculated by reference to the taxpayer’s ‘period of ownership’ and their ‘period of occupation’, on a pro rata basis. 

Generally speaking, the period of ownership begins on the date the property was initially acquired (or 31 March 1982 if later) and ends when the property is disposed of. However, care must be taken where there has been a delay in taking up residence or in cases where the taxpayer may already own the land on which a house is to be built or buys a plot specifically for the purposes of building a house.    

Where there has been a delay in a taxpayer taking up residence in the property, the period of non-occupation between buying the property and moving in can, in certain circumstances, be treated as a period of occupation. This is subject to certain conditions and is limited to a 24 month period on the condition that no other person uses the property as their residence during that time. This applies only where the delay is due to construction, renovation, redecoration or alteration of the property, or because the taxpayer does not move in until they dispose of their previous residence.

Where the above conditions are met, the taxpayer is deemed to occupy the property from the date of acquisition. If the conditions above are not met, the gap between acquisition and moving in will be a period of absence which may restrict the amount of PPR relief available.  

Prior to 6 April 2020 the 24 month period was given by way of concession and now forms part of the CGT legislation. 

Example 1

Emma buys a plot of land in January 2020 on which she intends to build a house for her and her family. The building work commences in June 2020 and is completed by June 2021. Emma and her family move into their new home in July 2021 and this becomes their main residence.

PPR relief is available from January 2020 (the date the land was acquired), rather than the date on which Emma moved into the property.

In some circumstances there could be a period of time where the taxpayer owns the land before building a house to live in. A requirement of the relief is that the “moving-in time” must be within the first 24 months of the period of ownership. The result here being that there can be occasions where land is owned for some time (more than 24 months) and then a new house is built on that land and, in these circumstances, the relevant period for PPR relief would be available from the date they actually move in and not from the date the construction commenced nor the original acquisition date.    

Example 2

Graham purchases land in January 2010. In January 2020 he applies for planning permission to build a home, the building works begin in June 2020. The property is completed in July 2021 and Graham moves in straight away.

From January 2010 until June 2020 when the building works commence, Graham owned only the land, which does not qualify for PPR relief as, he did not move in within 24 months of the acquisition date. 

PPR relief on the residential element of the gain is only available from July 2021 (the date on which Graham moves in).

First-tier tribunal case

The “period of ownership” point was recently disputed through the Courts with the taxpayer winning the case at the First-tier Tribunal with HMRC having until 11 July 2022 to appeal. At the time of publication of this article, it is not yet known whether or not HMRC have appealed. The case concerned a scenario whereby the land was purchased and the construction of the house was completed with them moving more than 24 months after the date of purchase of the land. The taxpayer contested that the ownership period for the purpose of PPR relief was in respect of the period of ownership of the dwelling house rather than the land.    

Get in touch

If you are affected by the above or would like to discuss this in more detail, please do not hesitate to contact Max Chassels or your usual Johnston Carmichael contact.