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Introduction to Principle Private Residence Relief

Thursday 13th February 2014

This is our basic introduction to Principle Private Residence Relief (PPR).

A gain arising on the sale of an individual's only or main private residence is exempt from Capital Gains Tax (CGT) under PPR.

If you have occupied the whole of the residence for the entire time of ownership then any gain is exempt from CGT.

If however the residence has become a second home at some point (i.e. not your PPR) then only part of the gain is exempt. This is calculated by taking the total gain and multiplying it by the period of occupation divided by the total period of ownership.

For example: You own a house for 10 years but for the last four years it has been your second home.

You sell the property and make a total gain of £100,000 this is then apportioned by multiplying it by 6 (period of occupation) divided by 10 (total period of ownership) = 0.6 x £100,000 = £60,000. This is the gain that will receive PPR relief. £40,000 will then be taxed.

HOWEVER

PPR also states that the final 36 months of ownership are exempt from CGT if at some point the residence has been the taxpayer's main residence.

So in the example above, the period of occupation was 6 years, the final 3 years (36 months) are also exempt, leaving just 1 year's worth of the gain as taxable. £100,000 x (9/10) = £90,000 receives PPR relief and £10,000 is taxable.

Each person in the UK is eligible for a CGT allowance currently set at £10,900 meaning the first £10,900 of Capital Gains is not taxed - in the example above the £10,000 of taxable gain would be wiped out by this relief and the whole £100,000 gain would therefore be tax free.

This is a basic introduction to PPR and CGT, I hope you can see that by understanding how PPR works we can make tax planning decisions that could wipe out a CGT charge. Taking tax advice before you make any decision is therefore key.

If you have any questions please do get in touch.

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