Principal Private Residence Relief (PPR) is a relief that enables homeowners to sell their homes without having to pay capital gains tax (CGT).  However, in order to claim the relief, the property must be the main residence of the person selling the property.

If the home being sold was not the main residence of the seller throughout the entire time of ownership then PPR is restricted and this may result in CGT being payable.

PPR is accompanied by many complex rules and conditions which have become much less generous in recent years. Here are some situations that we have recently come across which could lead to unexpected CGT to pay.

Separation and Divorce

In cases of separation where one spouse moves out of the matrimonial home and it is subsequently sold to a third party, the outgoing spouse may not be entitled to full PPR as they have not lived in the property throughout the full period of ownership.

However, if the outgoing spouse transfers or sells their share to the spouse who has remained in the property, PPR may be available for the full period, even the period where the ongoing spouse was not resident there.  This is subject to meeting certain conditions.

Selling the house and land at different times

If you sell your home but retain part of the garden with a view to selling to a property developer at a later date, you need to consider the potential CGT when you come to sell the remaining land.  PPR only applies at the point that you sell your main residence and as the retained land is no longer attached to your home, it will not qualify for relief on any subsequent sale.

If the scenario is reversed and you sell part of your large garden to a property developer, then PPR may be available depending on the ‘permitted area’ of the land. However, if the land has been ‘fenced-off’ in preparation for the sale and is distinct from the garden then technically it no longer forms part of your residence and PPR may be denied with CGT becoming payable on the gain.

A large garden

HMRC allows PPR for a garden or ‘permitted area’ of half a hectare which is approximately 1.2 acres. If your garden exceeds this size relief may be denied on the excess resulting in some of the gain being chargeable to CGT.  However, HMRC takes into account the size and character of your house when considering the permitted area and will extend the relief when it is appropriate although strong evidence is usually required to support the claim.

PPR for two houses for the same period

If an individual has two or more residences then they have the right to nominate which is to be their main residence and the one to which PPR will be applied.  If no election is made then HMRC will decide this based on the facts of the case.  With some planning, it may be possible to elect for PPR to apply to the property that is likely to give rise to the largest capital gain.

There is a concession with a newly acquired dwelling where it is possible to obtain PPR relief on both the property that is being sold and the newly acquired property for the same period. If there is a delay between the new property being acquired and vacation of the old property (due to renovation or a delay in selling the old property) then the gain on the old residence may be wholly relieved by PPR if the property is vacated at the time of sale. Relief is also available on the new residence from the time of acquisition, provided that occupation of the new residence takes place within 24 months of ownership. Therefore in this instance, PPR is available on two residences for the same period and there is no need to make an election.

Of course, every situation is unique so if you are thinking of selling, transferring or gifting property or land, then please give our expert team a call as advance planning can be key to potentially reducing your tax liabilities.


Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.