What Is Private Residence Relief?
As the name suggests, the private residence relief is nothing but a relief provided to the taxpayers by the government of United Kingdom that enable them to sell their residence without attracting any Capital Gains on the same; however in order to avail the mentioned relief, the property is picture has to be the primary residence of the seller and the secondary or an investment property. As per the taxation policy of the United Kingdom, the mortgage you pay on a particular property is directly related to the type of property and in order to simplify the process, the HMRC has classified the property under three main categories i.e. a primary residence, a secondary residence and an investment residence.
Also Read: Capital Gain Tax Calculator
A primary residence, also called and known as private residence is the main home of the seller i.e. he or she stays there. In order to define the private residence, it could be anything from being a single building i.e. a detached house or it could be more than one building i.e. a house with a garage attached to it and in case your dwelling house has more than one buildings, then the private residence relief may or may not be extended to all the buildings so you need to decide on which building has to be declared as a dwelling house. Also if you have let out a part of your building or all of your home during the duration of your ownership, then you are no longer eligible to claim the private residence relief. However, the silver lining here is that you can still claim “Letting Relief”.
Private Residence “Letting Relief”: Amount to Claim
At present, the Letting Relief provides up to £40,000 of relief for an individual and £80,000 of relief if you are a married couple, i.e. as an individual or as a married couple, you can claim the letting relief on the property even if you have not stayed there for a fairly long time; however UK government is all set to make certain changes to the relief and will make it available only to those who are in a shared occupancy with a tenant. However, it will not affect owner-occupiers or landlords who have never lived in the property that is being rented out.
Also Read: Private Residence Letting Relief
For a residence to be classified as a private residence, it has to meet following requirements:
When it comes to rules and regulations, it cannot be possible that there are no “ifs” and “buts” attached with them, and private residence relief is not an exception. So, like mentioned above, you need to meet the mentioned requirements in order to qualify for the relief, however, even if you have met all the conditions mentioned above, you may not be entitled for the relief if:
The primary residence or the private residence can be an apartment, a houseboat or any other form of the property that you live in most of the year. As mentioned above, the private residence relief saves from attracting any Capital Gains Tax on selling of the same, however you need to be clear about what can be a part of a primary residence and what cannot be a part of the same, such as:
- A house, which is your home, where you stay for most of the year and can be a house, a houseboat or fixed caravan or a flat;
- A part of the house, which is your primary residence
- A part of the garden that is attached to your house and you would normally be paying Capital Gains Tax on any gain you make on it.
- If at any point of time during your ownership, you have more than one house, then you can only have one main residence in order to claim the private residence relief. The good part here is that you have an option to choose and nominate which residence is to be treated as your primary residence for a particular period, however the catch here is that you have to make the nomination within 2 years of buying the second property and if you miss to make the nomination, then HMRC will rely on the facts to determine your
Any individual is entitled to claim the relief, if he or she owns the freehold of the mentioned property or if you are a tenant living in the property on a lease. You are also entitled to claim the relief in case if you own the property jointly with someone else. As mentioned above, you have to meet certain requirements in order to claim the private residence relief. However, even if you are not entitled to complete private residence relief, you can still see if you can claim partial private residence relief.
Also Read: Capital Allowances
Primary Aim Behind the Private Residence Relief
The main aim behind the introduction of primary residence relief was to keep the taxpayers out of the Capital Gains Tax on selling of their primary residence as per the guidelines mentioned by the HMRC. However, apart from rolling the primary residence relief for those who own a primary residence, the HMRC has also rolled out ancillary reliefs for those that extends to those who are not occupying their main residence and in order to have a better focus on the private residence relief, government of the United Kingdom is all set to make certain changes to the same, with effect April 2020 and in order to do so, it has made certain changes to two ancillary reliefs, that would aim to provide relief on the rented property and on the gains made during the final duration of the ownership.
Here, the aspect that UK government is willing to overlook is “occupancy”: