If you are planning on disposing of your primary residence, you may be eligible to claim the Principal Private Residence Relief (PPR) against the disposal proceeds.
This private residence relief means that you will not have to pay any Capital Gains Tax on the disposal of your main home as long as you are able to satisfy the main two conditions. These two conditions are based on the assumption that you have owned the property for the whole period and they are:
- It has been your only home or main residence
- You have used the property as your home and for no other purpose.
The gains on the disposal of an individual’s principal private residence will be exempt from any Capital Gains Tax (CGT) unless: there have been significant periods of absence (other than the last 36 months of ownership which always has PPR) or there has been business use.
In order to calculate the occupancy periods of the property, there needs to be the distinction between actual occupation and deemed occupation. Actual occupation is when the individual spends time living at that property. Deemed occupation is slightly more complex because even if you are not physically living at the property, you will be deemed to be living there under the following circumstances:
- Any period that the owner is employed overseas
- Up to a total of 4 years where the owner is employed elsewhere in the UK
- Up to a 3 year period for whatever reason
- The last 36 months of ownership are always deemed occupied.
By using actual and deemed occupation, you will then be able to calculate the amount of PPR that you can claim against the total gain for the disposal of your property. With careful planning, it is possible to maximise these periods, even if you have two properties available.
In addition to PPR, if you decide to let out your property, you may be entitled to lettings relief. This relief is available for periods of letting where PPR has not been previously claimed. The rules do however need careful consideration.
If you would like more information about how Private Principal Residence Relief affects the disposal of your assets, please contact us.