Principal Private Residence Relief
When properties and other long-term assets are sold, a Capital Gains Tax (CGT) charge is normally payable on the profit made. However, a special relief is available where the property sold has been the main residence of the owner throughout the period of ownership. This is principal private residence (PPR) relief, and it is a 100% relief. That means that when you sell your home, you will generally not owe any tax on the property’s increase in value. If you have always lived in the property and do not own another private residence, the relief is straightforward. However, it is important to understand the rules and laws surrounding it.
The Chancellor recently announced that changes to the reliefs available when selling a PPR would be implemented along with several other anti-avoidance measures.
Previously, when property that qualifies for PPR relief is sold, the last 36 months of ownership was treated as an exempt period. This applies regardless of how the property has been used. So even if the property has been vacant, used as a holiday home or rented during the period, this applies. This exemption was put in place to help those who were having trouble selling their homes immediately after purchasing a new home. However, for those who have two qualifying properties, it had become a tax planning facility; most notoriously I might add, by several MPs who were using the tax advantages to 'flip' between their London and constituency homes.
As a result, the 36 month period has been reduced to 18 months as of the 6th April 2014. This will not affect those who have exchanged contracts for the sale of the property on or before 5th April 2014 and completed on or before 5th April 2015.
Get in touch with one of our tax advisors if you would like further advice on this matter.