How Does ‘Private Residence Relief’ Work?

The tax rules differ on a property that isn’t your main home and if you sell your UK home as a non-resident (e.g. while living abroad).

You can use an online tool to work out tax relief when selling a primary residence (on GOV.UK). You can also find out:

• If you will need to pay Capital Gains Tax (CGT).
• What proportion of the gain will qualify for PRR relief.

Note: The rules on capital gains allow married couples (and people living in a civil partnership) to count only one (1) property as the primary residence (main home) at any one time.

In the United Kingdom, you do not have to pay Capital Gains Tax (CGT) when you sell your house (or dispose of) as long as you have (all):

• One (1) home and have lived in it as your primary residence (main home) for all of the time that you have owned it.
• Not let out any part of the property to another person (excludes having a lodger).
• Total grounds (including all other buildings) of less than five thousand (5,000) square metres (a little over one acre).
• Not used any part of the property ‘exclusively’ for business activities (excludes using a room as a temporary or occasional office).
• Not bought the property with the sole intention of making a profit (gain).

You will be eligible for full Private Residence Relief (one of the tax reliefs in the United Kingdom) if all the above apply to your circumstances. If not, you may need to pay a partial tax.

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How to Calculate the Gain?

The gain is defined as the positive difference between the purchase price of an asset and the amount received by selling it. Even so, you would need to use the current market value rule in circumstances where you:

• Give it away or donate it (unless given to your spouse or civil partner).
• Sold it for a lower value than it was actually worth (e.g. to help close the sale with a buyer).
• Purchased the property before April 1982.
• Inherited the asset and cannot confirm the Inheritance Tax value (e.g. when valuing the estate of someone who’s died to get probate).

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Deducting Costs from the Gain

You will be able to deduct certain costs from Capital Gains Tax when you sell your house (e.g. when purchasing, selling, or making improvements). Some of the costs you can deduct from the gain include:

• Specialist fees paid out to estate agents and solicitors.
• Improvement costs, such as when adding an extension (excluding normal repairs and maintenance).

Some of the costs you cannot deduct from the gain include interest on a loan used to buy the property. You can contact HM Revenue and Customs for further information.

HMRC guidelines explain Capital Gains Tax liabilities when reporting a disposal of land, a compulsory purchase, if you are selling a lease, and for valuations of land (see Self Assessment helpsheet HS292).

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Living Away from the Home (absence)

You may still qualify for some Private Residence Relief even if you are living away from your home. But, the relief may only apply to certain periods of absence from home.

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Periods that Always Get CGT Relief

The last nine (9) months before selling a home always qualifies for relief. This rule applies – no matter where you were living at the time and even if you own multiple properties.

To qualify, it would need to have been the main or only residence that you had at some point during the time you owned it.

Private Residence Relief also applies to the two (2) year period when you first owned the home (even if it wasn’t nominated as your main home), as long as (both):

• It was still under construction, being renovated, or you were unable to sell your old home.
• You lived in the property as your main or only residence within two (2) years of owning it.

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Having Only One home (or nominating it)

You get relief if you own only one home (or you nominated as your home) if you are away from it for any reason for periods adding up to three (3) years, or for:

• Any period if you were working overseas (outside the United Kingdom).
• Up to four (4) years if you lived away from home because you were working (in the United Kingdom).

Unless your work stopped you from doing so, you would need to have lived in the property before and after the period(s) to qualify for relief.

Owning only one (1) home means you would qualify for relief for the last thirty six (36) months before selling it, if you (any):

• Are disabled.
• Have been placed in long-term residential care.
• Sold the property before the 6th of April 2014.

Note: Selling the home before the 6th of April 2020 would qualify for relief for the last eighteen (18) months if none of them apply to your circumstances.

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Owning More than One Home

As a rule, residence relief only applies for one home (and per couple) for any given period. Thus, you may need to work out when you lived in it as the ‘main’ one for each property.

Also, other than for the periods that always qualify for relief, you cannot get it for another property for the time that you have nominated your home. You can contact the Capital Gains Tax helpline with general enquiries.

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Nominating a Property as Your Home

Writing to HM Revenue and Customs (HMRC) is the recommended way to nominate one property as your main dwelling. Remember to include the full postal address and have all the owners sign the letter.

You must tell HMRC within two (2) years if you want to nominate a different home (e.g. when the combination of homes changes).

Capital Gains Tax Queries
HM Revenue and Customs
BX9 1AS
United Kingdom

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Letting Out Part of a Home

In this case, because Private Residence Relief (PRR) would only apply to a proportion of the gain, you would need to calculate the portion that you lived in.

How to Claim Letting Relief?

You may qualify for Letting Relief on gains made when selling your main home if you lived in it and had tenants at the same time. Letting Relief would be (the lowest):

• The same amount received as Private Residence Relief.
• £40,000.
• The same amount as the chargeable gain realised while letting out part of the property (excludes times when it’s empty).

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