The Holmes and Rahe stress scale is a list of the 43 most stressful life events, and at no. 33 is moving house – with trouble with your boss and your spouse stopping work right up there too. Presumably, the 2018 World Cup is no. 1!
There is enough to think about when moving house, and worrying about tax shouldn’t be one of them! Happily, there is a general exemption from paying Capital Gins tax when you sell a property which is your main or only home. This is called Principal Private Residence Relief, shortened to PPR (because tax practitioners love a good acronym).
Most people will come into contact with PPR in their life, whether or not they know it. That being said, there are several important rules which may impact on how much relief is available.
Below are 5 key points that people selling a property who might be entitled to PPR need to consider. Of course, the list is not exhaustive and is not a substitute for taking advice!
You need to actually live there
Taxpayers have tried in many ways to claim PPR for properties they did not actually live in and very rarely have they won. Those whose business is to ‘flip’ properties (buying a house that needs repair and doing it up before reselling it for a profit) will try to obtain PPR by living in a mobile home at the bottom of the garden whilst work is being carried out. As you may imagine, HMRC take a dim view of this and claims are often denied.
You and your spouse/civil partner can only have one ‘PPR residence’ between you
This is a point that not many people will appreciate. Spouses and civil partners can only have one residence eligible for PPR between them, and an election needs to be made within the time limit for which property will be the ‘PPR residence’.
You can be absent for certain periods, but you must return
There are a number of rules which allow you to be absent from a property but still claim PPR for the time you are absent. Often this is where people work abroad or in other parts of the country. It can also cover times when you have gone travelling, or are absent for any other reason. These are called ‘deemed occupation’ periods. However, it is vital that you return to live in the property, otherwise the relief for deemed occupation is not applicable.
The last 18 months are automatically exempt (but in some instances 36 months)
There is a long-standing rule that the period just before the date of sale is automatically exempt for Capital Gains tax, whether or not you actually live there. The rules about this changed in 2014 and the period is now the last 18 months. The old 36 month period can still be claimed in limited circumstances.
You can get PPR on the sale of garden/grounds, but be careful
Up to half a hectare of garden/grounds (which is a little over an acre) can be included in a claim for PPR. However, if you are lucky enough to have more land than this with your house, you may not be entitled to relief for all of the grounds. In this instance you will need a careful valuation and potentially to negotiate with HMRC.
If you are selling a property and are concerned about tax, contact Anna on 01865 255637 for an informal no-obligation conversation.