Principal Private Residence

Property Tax,

The home you own and live in is deemed to be your ‘Principal Private Residence’. There is an associated Principal Private Residence Relief which enables you to reduce your Capital Gains Tax (CGT) liability when you sell the property.

With property prices rising as quickly as they have done in recent years, this can be an important consideration!

Under Principal Private Residence Relief, the increase in the value of your home while you own it is exempt from CGT, although it is still reportable on your Self Assessment Tax Return.

The relief is given if:

  1. You have lived in the property as your main home for the full period of ownership. If not, Capital Gains tax may apply.
  2. You haven’t let out a part of it, for example charging your company for the exclusive use of a room. A lodger is not included in this.
  3. The grounds, including all buildings, are less than 5,000 square metres (half a hectare or a little over an acre). If this area is exceeded Capital Gains Tax may apply to part of the sale.
  4. If part of the grounds are distanced from the main property these may be chargeable to tax.
  5. You do not buy the property simply to make money from an anticipated increase in value.

The Private Residence relief is automatic, it does not need to be claimed.

If the property grounds including all the buildings exceeds half a hectare it may still be exempt if you can persuade HMRC that they are for the “reasonable enjoyment” of the property as a residence by a “reasonable person”; there have been several legal cases around this point. It isn’t straight forward though, so if you have a property with that amount of land, please ask us to explain further!

From the above you can see that it’s essential always to keep records around the purchase and disposal of any property, regardless of the timescales involved.

If you have any questions around the above, or property tax in general, please get in touch. It can be a complex area, but given the large values involved, one that it’s important to get right! There are also some quite short time scales involved in reporting transactions to HMRC, so it’s a very good idea to prepare in advance of any transactions going ahead.

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