Principal Private Residence Relief

Principal Private Residence (PPR) relief is the most significant relief from Capital Gains Tax (CGT) on the sale of interests in property. The relief applies to exempt any gain accruing on the disposal of a dwelling-house which has been an individual's only or main residence. Although the application of this relief is straightforward in the majority of cases, it can raise complications and opportunities in cases where an individual has more than one property.

The general exemption

The exemption applies to either the whole, or a fraction of, the gain attributable to the disposal of a dwelling-house, or part of a dwelling-house which is, or has at any time in the individual's period of ownership been his only or main residence. The exemption also extends to the garden or grounds held for the individual's own occupation and enjoyment with that residence.

Total exemption will apply to a gain if the residence (or part of the residence) has been the individual's only or main residence throughout the period of ownership.

Fractional exemption will apply where the total exemption does not apply to a gain. When calculating the proportion of the gain that is exempt, the total gain is multiplied by the periods of ownership during which the residence (or part of the residence) was the individual's only or main residence (including the final 36 months of ownership regardless of occupation), divided by the total period of ownership. The period of ownership begins on the date that the residence was first acquired or on 31 March 1982 if that is later.

An individual may only have one main residence at any given time. Spouses or civil partners, when living together, may only have one main residence jointly.

Qualifying property

Although there is no definition in the legislation of what constitutes a dwelling-house, the term dwelling-house will include a flat as well as a house. It is also likely to include a garage which comes with the flat or house.

The exemption also applies to land which the individual (or couple) has for his own "occupation and enjoyment" with the residence as its garden or grounds up to the basic permitted area of 0.5 hectares (5,000 sq. metres). However, if the garden or grounds are larger than that, the tax legislation extends the exemption to "such larger area as is required for the reasonable enjoyment of the dwelling-house as a residence, taking into account the size and character of the dwelling-house".

Periods of ownership...