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Principal Private Residence relief is a tax benefit that lowers the amount of tax you have to pay when you sell a property that has been your main home. To be eligible for this relief, you must meet two conditions:
- The property is used as a home.
- It’s your main home.
You need to own the property, either as a freehold or leasehold, to consider it a residence. It’s essential to know how long you must live in the property before it’s seen as your main home.
Defining Residence and Occupancy Time : “Residence” is not clearly defined in UK law, but tax authorities (HMRC) expect it to be a place where you live with some permanence. Living in the property for just a few days a year won’t be enough. Although there’s no strict rule, a three-month stay might be needed to establish your main home. HMRC focuses more on the “quality” of your stay rather than how long you live there.
How to Prove a Property is Your Main Home : A tax inspector will check the circumstances around your use of the property. Some factors to help prove a property is your main home include:
- Mortgage set up for a main home
- Owning the property as a freehold
- Utility bills in your name
- Continuous and regular occupation
- Property used as the family home
- Tax return and employer correspondence sent to the property
- Working close to the property
- Bills for work sent to the property
- Registration with the local authority as your main home
- Furnishing the property with your own furniture
Owning Multiple Properties: If you own more than one property, you need to evaluate the factors mentioned above to determine which one is your primary residence.
Reducing Capital Gains Tax on Rental Properties: If you own a rental property and want to lower the capital gains tax when selling, consider living in it as your main home. Doing so could qualify the property for partial PPR relief and lettings relief. Make sure to live in the property for a suitable period (6-12 months or more) before selling to qualify as a main residence.
Recent Court Cases and Residence Definition: The legal interpretation of “residence” can vary, and it’s crucial to establish a sense of permanence and ongoing occupation. Court decisions differ, and each case is assessed based on its specific circumstances. We have listed some cases for your knowkedge.
Goodwin v Curtis [1998] In this case, the taxpayer, Mr. Goodwin, occupied a property for just five weeks after separating from his wife. He stayed in the property as temporary accommodation, and two days after moving in, he purchased another property intended to be his main residence. The Court of Appeal ruled against Mr. Goodwin, stating that his short stay in the property did not have the required permanence and continuity to qualify for PPR relief.
Susan Bradley v HMRC [2011] Ms. Bradley separated from her husband, moved out of the matrimonial home, and moved into another house she owned. She made improvements to the property and treated it as her home. Although she put the property on the market, the housing market was slow, and she expected to live there permanently. After eight months, she reconciled with her husband and moved back to the matrimonial home. The tribunal ruled that her occupation was temporary, and since she had put the property on the market, it was not considered her residence for PPR relief purposes.
Piers Moore v HMRC [2010] Mr. Moore owned two properties and claimed PPR relief on one of them, stating that he had occupied it as his main residence for a short period. However, the tribunal found that the occupation was too brief, and there was a lack of evidence showing that the property was genuinely his main residence. As a result, the tribunal ruled against Mr. Moore’s claim for PPR relief.
These cases demonstrate that the definition of “residence” for PPR relief purposes is not set in stone and is influenced by factors such as permanence, continuity, and intention. The courts and tax authorities assess each case based on its specific circumstances, which can lead to varying outcomes. Please contact our specialist tax advisors to review specific facts and circumstances to ensure proper tax treatment and compliance with UK tax laws.