The Principal Private Residence Relief ' Practical Problems During The COVID-19 Pandemic

• Published date: 14 April 2021
• Subject Matter: Tax, Capital Gains Tax
• Law Firm: Katten Muchin Rosenman
• Author: Ms Charlotte Sallabank and Kit Fowler

Principal private residence relief (PPR) provides an individual disposing of their main or principal place of residence (their 'dwelling-house' ' such term is not defined in the legislation, but generally includes buildings fit for human habitation and lived in) with relief from all or part of the capital gains tax (CGT) arising on such a disposal.

Broadly, in order to be eligible for PPR, the individual's dwelling-house must be the individual's only or main residence at some point during the individual's period of ownership, and the dwelling-house should not have been acquired in whole or in part for the purpose of realising a gain from the disposal of it (i.e., the dwelling-house was not acquired to be 'flipped').

There are, however, circumstances in which the use of PPR can be restricted or even entirely denied. Individuals should be aware that travel restrictions and working from home could bring two of these circumstances into play.

Business Use - All Work and No Play?

It is a fact of life at present that many people are working from home for an extended period of time, and may be required to do so by their employer (if not the law) for many months to come. Working from home may affect the use of the property for PPR purposes, as the property will no longer be solely used for domestic purposes.

As a general rule, PPR will be restricted where only a portion of the dwelling-house has been occupied as the owner's sole or main residence, while the other part or parts are being used for business purposes.

The relevant legislation (s.224 TCGA 1992) states that those parts of a dwelling-house which are 'used exclusively [emphasis added] for the purpose of a trade or business, or of a profession or vocation', will be in effect carved out of any PPR for which the individual disposing of the dwelling-house is eligible. An apportionment is made, whereby the gain arising on disposal of the dwelling-house is divided into the portion of the dwelling-house which is used exclusively for business purposes and the portion which is used as a home. It is the residential part alone which is eligible for PPR. Where an individual has been claiming expenses as a business deduction, or as a home working deduction in the case of an employed individual, on the basis that a room is exclusively used for business purposes then a PPR apportionment is more likely.

However, if a room or section of the dwelling-house is not exclusively used for business purposes, and instead operates...