Private Residence Relief (PRR) is a scheme implemented by the British government to prevent homeowners being faced with a bill for Capital Gains Tax if they sell their home. Capital Gains Tax is paid on the profit you make when selling an item, and with the average British home selling for more than £228,000 in summer 2011, this could be a very large bill.
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Qualifying for Private Residence Relief
Generally speaking, you will qualify for PRR when you sell your home if it has been either your only home or main residence throughout the time you’ve owned it. You must also have used it only as a residence and not for any other purpose, such as running a business, and you must not have let out part of the building to a tenant.
Certain exceptions apply to the PRR scheme, dependent on your personal circumstances. For example, you may not qualify for PRR if you have a garden larger than around half a hectare, if your property has a lot of outbuildings or if you use part of your property for business purposes. If you bought the property purely in order to sell it to make a profit, you may also be liable for Capital Gains Tax. Her Majesty’s Revenue and Customs (HMRC) will look at your individual case when making a decision, so if you are in any doubt you should contact them for advice on 0800-300-0627.
Owning Two Homes
If you own and live in two homes, you must tell HMRC which of these homes is your “main” residence. This process is called nomination. You must do this within two years of buying your second property. If you fail to nominate a property, HMRC will make a decision based on the facts at the time you sell one of the properties, which could mean you pay more Capital Gains Tax. If you are married or in a civil partnership and you both own a property, you can claim PRR on only one of the properties.
Absences From Home
If you were absent from your home during part of the time you’ve owned it, you may still be entitled to PRR. For example, all homeowners can claim relief on the first 12 months of their ownership – this is to cover a period during which you may not be able to move in because you haven’t sold your old home or your new home needs work before it’s habitable. Likewise, if your employer sent you abroad for work, you will still qualify as long as you were not away for more than four years.
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