Private residence relief is designed to enable you to sell your main home without having to pay capital gains tax (CGT).

This valuable tax relief may also help you reduce your CGT bill when you sell a second home or sell off part of your garden.

How does private residence relief work?

You’d normally have to pay capital gains tax on any gain you make if you sell:

  • Your home (which can include a house, flat, fixed caravan or houseboat)
  • Part of your home
  • Part of the garden attached to your home

However, you’ll be able to claim full private residence relief (PRR) if all the following conditions are met:

  • The home has been your only or main home throughout the time you’ve owned it
  • You haven’t been absent – except for an allowed period of absence or because you’ve been living in job-related accommodation – while you’ve been the owner
  • The garden or grounds – including the buildings on them – aren’t bigger than the permitted area
  • No part of your home has been used exclusively for business purposes while you’ve owned it

If you meet all these conditions, you won’t have to pay CGT when you make the sell.

And if you don’t meet all the conditions, you may still get partial relief under certain circumstances.

But you won’t be able to claim PRR if you sell all or part of your garden after you’ve sold your home, or you acquire a home and/or spend money on it to make a profit when you sell it.

Are you entitled to PRR?

You’re eligible for private residence relief if you own the freehold of your home or if you’re a tenant owning a lease. You’re also entitled to PRR if you jointly own the freehold or lease with someone else.

What else should you be aware of?

Private residence relief is a very valuable tax relief which, in most cases, is straightforward.

But PRR can be complicated, especially when your land is above the permitted area.

What is permitted area?

If your garden and grounds aren’t bigger than half a hectare (a little over one acre), you’re entitled to tax relief for all of it.

But if your garden and grounds are bigger than half a hectare, you may not be able to claim private residence relief for all of it.

The area for which you’re entitled to relief is called the permitted area. It’s made up of the area that’s needed for the “reasonable enjoyment” of your home. The size and character of your home must be considered as part of this.

Get specialist tax advice

There are many court cases that have considered the issue of character in terms of the land that is sold with a property. So, it’s important for you to get specialist tax advice to ensure you have a filing position before claiming relief, if the size of your land is outside the statutory limit.

What’s more, you may want to consider whether to notify HMRC about why you’ve claimed full relief (by including an explanation on your tax return), to reduce the timeframe HMRC has to challenge the transaction.

If you’d like professional advice on claiming private residence relief, call our team of experienced tax advisers today on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation