If you sell your home for more than you bought it for, you have made a gain. Gains on homes are not exempt from capital gains tax (CGT), however, a relief known as the Private Residence Relief (PPR) is often applicable. 

This relief prevents many homeowners from having to pay 18% or 24%, depending on their tax bracket, in capital gains tax on the property’s gain in value.

Changes are afoot at HMRC

Historically, HM Revenue & Customs (HMRC) paid little attention when someone sold their home, but this is changing. Modern data collection and sharing means HMRC now have access to:

• Land Registry data on property sales,
• Council Tax data on property occupation and usage, plus
• Open information on the internet showing detailed particulars of the property sold.

As a result, they are comparing data to find situations where the relief should be denied and seeking confirmation that capital gains tax should be paid. Where the taxpayer disputes this, HMRC can, and are, going to a tribunal.

A deadline not to miss

Where a capital gains tax liability arises on a UK residential property sold on or after 6 April 2020, you must report and pay any capital gains tax due on UK residential property within:

• 60 days of selling the property if the completion date was on or after 27 October 2021
• 30 days of selling the property if the completion date was between 6 April 2020 and 26 October 2021

You may have to pay interest and a penalty if you do not report and pay on time.

How to qualify for Principal Private Residence Relief (PPR)

As HMRC is likely to continue its recent trend of targeting cases where it feels the relief should be denied, it is worth becoming familiar with the relief’s main features.

1. Demonstrate permanence

– To qualify for PPR, you need to be able to demonstrate that you occupy the residential property as your main home with the intention of permanence. Be mindful that if you are planning your eventual sale (liaising with estate agents, etc.) prior to moving in, then HMRC may question your permanency intention.

2. Equip for normal living

– Your claim for relief would be jeopardised if the property you sold had not been equipped for normal living whilst you lived there. For example, it should have been adequately furnished with a cooker and a washing machine.

3. Beware times of absence 

– Absences from the property need to be considered. Absences when the property is let do not qualify for PPR. The previously available alternative relief, known as letting relief, has been restricted from 6 April 2020 and now only applies when the home is shared with the tenant.

4. Land enjoyed as part of the dwelling 

– The land around the home you are selling, such as its garden, is included in PPR only if it is enjoyed as part of that dwelling. If the land is used for other purposes, such as business, it may be excluded from PPR. Be mindful that a property’s grounds of more than 0.5 hectares (just over 1.2 acres) may also fail to qualify for PPR, depending on the size and nature of the dwelling.

5. Personal circumstances

– These can also affect whether you qualify for PPR. For example, a couple in a marriage or civil partnership can only have one qualifying home between them. If each owns a home, then it’s important to elect which property will be used for PPR qualification after the marriage/civil partnership and going forward. On divorce, it is also important to understand the options for relief that may be available.

6. Ownership period 

– The ownership period of the property can also throw up problems as a property may be unoccupied for a time. If a property has at some point been your main residence, some periods can be deemed to be periods of occupation even if you are not residing in the property. The most common of these is the final ownership period, which from 6 April 2020, is 9 months.

For disabled persons or people who have moved from their main residence into a care home, this final period is extended to 36 months.

Summary

In many cases, Private Residence Relief (PPR) applies and can be used to reduce or eliminate a Capital Gains Tax (CGT) liability when selling a home whose sales price has made a gain for the owner. Be mindful though, that there are qualifying criteria for the relief, and you need to ensure you meet them. 

Also, be aware that this is an area HMRC is focused on, and information now reaches HMRC from many sources. The Chancellor has also announced an Autumn Budget for 30 October 2024, and this may include tax changes relating to property.

If you need help or further advice, please contact one of the specialists shown on this page.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

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