Your Home and Capital Gains – PPR

The main provisions of Principal Private Residence Relief (PPR) have changed relatively little since the inception of the relief in the 1960s. What has changed is the volatility of the property market resulting in the potential for significant gains over surprisingly short periods.

The main rule is that one can only have one PPR. This is the place that you occupy as your only or main residence. If you occupy two properties as a residence, you can choose which one counts as the PPR. You could choose the property likely to produce the largest gain, or you might want to choose the one most likely to be sold.

PPR is wasted on death as the uplift to probate value would extinguish the capital gain (although there may be some IHT consequences).

A married couple can only have one PPR between them. This also applies to couples in civil partnerships but not to unmarried couples. So, before the wedding/civil partnership ceremony, couples should discuss which of their two properties to retain or if they choose to use both as their residences, which one it would be beneficial to designate as their PPR. An election should therefore be made to HMRC. If an election is not made, then one looks at which residence one preponderately lives at looking at both the relative periods of occupation and the quality and permanence of the act of residence.

When a couple separates, then they are once again able to have two principal residences on that basis. However, in case you thought this might give you a planning opportunity, the courts looked very suspiciously at a couple who separated and reunited within days of the second property being resold.

It is possible to have periods of absence and claim it as deemed occupation. This includes potentially the first two years after the property is bought to cover difficulties with selling old property and extended building works.

Periods of deemed residence can include:

  • a three-year period of absence for any reason if there is real occupation before and after the deemed occupation.
  • If you are employed then up to 4 years if transferred elsewhere in the UK and indefinite when transferred abroad. In these cases, if it is impractical to reoccupy the property then that clause can be
  • If you are self-employed you are able to claim up to 4 years deemed occupation if your self-employment takes you elsewhere.

There have been several changes to PPR, notably the final period of deemed occupation which is allowed if the property has at any time been your only or main residence has been reduced from 36 months to 9 months. 36 months is still allowed when you are entering a care home.

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