I was asked recently by a client as to what tax reliefs were available where their home (Principle Private Residence) was let under a tenancy agreement, rather than sold when they moved. This was something that we had done a number of years ago, but I needed to brush up on the current rules.
The Principle Private Residence (PPR) is the tax name for your home. There are criteria laid down by HMRC for PPR to apply HMRC PPR Rules 2018 , but in most cases it is the home that you own.
Generally, there is no Capital Gains Tax (CGT) to pay on the sale of your home. But if you own more than one property, the second one is liable to tax.
You can choose which property you wish to be your main residence, provided this is done within two years of buying the second property. You can then switch your nominated “main residence” between the different properties as often as you like as long as you notify HMRC each time.
To qualify for Principal Private Residence Relief, you must have lived in the property and at one point it was your main residence.
Example of PPR Relief
You purchased a property in January 2001 and sold it in December 2020, owning it for 20 years. You lived in the property for 10 years, rented it out for 10 years. It produced a gain of £150,000.
As you lived in the property for 10 years, you would be able to claim PPR relief for this period and the relief would be £75,000 (10/20 x £150,000)
In addition to the above, you are also entitled to a further 9 months of relief (this was 18 months in 19/20), and this is regardless of whether the property was let to a tenant or remained empty. Therefore, the PPR is increased to £80,625 (10.75/20 x £150,000)
There are further reliefs for those who are disabled or live in care homes and the 9 months is extended to 36 months.
An individual’s personal Capital Gain Tax allowance for 2020/21 is £12,300.
So, for a husband and wife joint ownership, with no other capital gains, as the chargeable gain is on the above example is:
Gain from property sale £150,000
Less PPR £80,625
Less the Annual Allowance £24,600
Taxable Gain £44,775
The rate of CGT depends on whether the tax payer is a higher rate (28%), or basic rate (18%) tax payer.