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Changes to principal private residence (PPR) relief when you sell a property

By RJP LLP on 16 May 2019

Capital gains tax may be payable on gains made when you sell a property, unless that property qualifies as your PPR for the entire period of ownership, in which case, PPR relief will apply and the gain will be tax free. If the property qualifies as your PPR for only part of the period of ownership, an apportioned relief will be due, thus reducing the capital gains tax which would otherwise be payable.

It is worth noting that PPR relief is protected in some situations where a property owner’s circumstances change, and those changes affect their eligibility to claim relief. This protection is given in the form of ‘ancillary relief’. For example, if somebody is not able to live in their main residence for a work-related reason, any gains they make for up to three years can be protected.

Other periods of absence are also covered by two reliefs: final period of ownership relief  and lettings relief:

  • Final period of ownership relief originally provided PPR exemption for the final 36 months of ownership of a PPR, but following a reduction in this relief, it currently provides PPR exemption for the final 18 months of ownership, irrespective of whether you continue to live in the property. So for example it will apply for that period if the property is empty, or even if it is rented out, provided it has been your PPR at some time during your ownership.
  • Lettings exemption applies where a property has been your PPR at some time during your ownership and has also been rented out. This is a maximum of a £40,000 reduction in the capital gain per person, restricted to the amount of PPR exemption claimed.

Both these reliefs are unfortunately due to be restricted for property sales after 5 April 2020. These restrictions were first announced in the 2018 Budget and on 1 April 2019 HMRC published a consultation document, which closes on 1 June 2019, to explore the potential impacts. The final response and draft legislation are expected in summer 2019.

How are the tax reliefs changing?

  • Final period of ownership relief reduces from 18 months to nine months

As mentioned, final period relief is currently 18 months. This means that a property owner is able to accrue tax relief on multiple properties intentionally, which contravenes the original objective of PPR relief as being awarded for a main home. The government says that by cutting the time to 9 months, the legislation will better reflect the needs of people who genuinely want to move home but are finding it difficult to sell their old property.

The 9-month restriction period will come into force on all disposals made from 6 April 2020 onwards. It is important to note that the property sale date for capital gains tax purposes is the date of exchange of unconditional contracts and not the date of completion.

Any taxpayers who are registered disabled or who are moving into social care won’t be affected, their entitlement to PPR will remain at the original 36 months.

The annual CGT allowance of £12,000 per taxpayer can also be used to reduce gains on a property sale. Note that this annual CGT allowance cannot be carried forward if unused nor can it be backdated. If unused during the relevant tax year, the allowance is lost.


Example of how the 9-month period works

Bill bought a dwelling on 1 April 2002 for £100,000 and lived in it as his main home until 31 March 2012, when he moved to another main home. He didn’t let out the first property (so no lettings relief is available) and it is sold on 30 April 2020 for £300,000, making a gain of £200,000.

Bill is entitled to PRR relief for the period  from 1 April 2002 to 31 March 2012 (120 months), when he used the dwelling as his main residence.

He did not live in the property for the period from 1 April 2012 to 30 April 2020 (97 months). Under the new rules, final period relief will be available for the nine-month period from 1 August 2019 to 30 April 2020 and the balance of the gain will be chargeable.

This means that of the 217-month period of ownership, 129 months (120 when Bill lived in the property as his main residence plus the final 9 months) will qualify for PPR relief. This reduces the chargeable gain by £118,894 to £81,106.

Once Bill has claimed his annual CGT exemption of £12,000 for the year 2020/21, CGT will  be due on a chargeable gain of £69,106.

If Bill is a higher rate taxpayer, he will pay CGT at the rate of 28% applying to residential property, and will have a CGT liability of £19,349.68.


  • Lettings relief is restricted unless the owner is in ‘shared occupancy’ with the tenant

Currently, PPR lettings relief provides up to £40,000 of relief (or £80,000 for a couple) to those who sell a property which has been their PPR and has also been rented out. The relief applies whether a single room is rented, or the whole property.

From 6 April 2020, lettings relief will be restricted and will only be available to those who are in shared occupancy with a tenant e.g. a couple have grown up children and an ‘empty nest’, so they are renting out rooms to lodgers but also remain living in the property.

However in this example the couple will be able to claim PPR relief on a large proportion of the gain on disposal of the property by virtue of the fact that they live in the property. Therefore the chargeable gain will be restricted.


Example – How the new lettings relief rules will work

Susan purchased a house for £200,000 in 2000, selling it for £350,000 in 2020. Throughout that time, she lived in the house as her only residence, but let out two spare rooms amounting to 25% of the property, to tenants who had exclusive use of their rooms (and their rooms only).

PRR relief will not wholly relieve any CGT arising on the sale of the property.

Lettings relief will apply as follows: Susan makes a net gain of £150,000 when she sells the property and is entitled to claim PRR relief on 75% of the property which covers £112,500 of the gain. That part of the gain attributable to the letting and not qualifying for PRR is £37,500.

Lettings relief is due on the lesser of:

  • The amount of PRR relief (£112,500); or
  • £40,000; or
  • The gain attributable to the letting (£37,500).

Therefore the amount of lettings relief due is £37,500 and the whole gain is exempt from CGT.


New rules for married couples and civil partners

The current rules provide that where one spouse makes a transfer of their only or main residence to the other, the acquiring spouse’s period of ownership of the dwelling is considered equal to that of the transferring spouse, even if the period started before their marriage, and they are therefore eligible for the historic PPR relief in full.

If however the property is transferred at a time when it is not the couple’s PPR, the acquiring spouse will not inherit the disposing spouse’s PPR relief.

The government is considering whether these outcomes should be reformed and made fairer, so that the acquiring spouse should always inherit the transferring spouse’s period of ownership and the total use to which the property was put during that time.

If you would like to find out more about property capital gains tax, please contact us to discuss your individual circumstances.

Note: The examples in this article are taken from HMRC’s consultation document, which is available to read here:

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60 Day Deadline for CGT Returns and Tax Payments

If you sell a property and incur capital gains tax on the transaction, you will need to file a tax return and also pay any tax that is due within 60 days of completion, or penalties will arise. Need help with your property taxes? Talk to us.