Private residence relief

General principles

The main residence relief applies to a dwelling house (including a flat, apartment or similar) that has been the taxpayer’s only or main residence at some time during his ownership. The legislation does not define “residence” but it means the dwelling in which that person habitually lives: in other words his or her home. This relief is also known as the principal private residence relief.

Please note that a house must be your home (and not merely owned or used by you) before it can be your main residence.

Basic rules

The exemption applies to the dwelling house and its normal garden. The basic rule is that the fraction of the gain that is exempt is the period of occupation as your main home divided by your total period of ownership. However, there is an extension of the relief because the period of occupation is “inclusive of the last 36 months … in any event”. It follows that the amount of relief depends upon which periods you occupied.

Extensions of the relief

The most important extension of the relief is the lettings extension. If you have let the property as well as using it as your main home, you can qualify for letting relief. The amount of the gain qualifying for letting relief is the smallest of:

1. The gain attributable to the period of letting.
2. The amount of main residence relief.
3. £40,000.

As an example, suppose that you made a gain of £100,000 over ten years. You let the property for nine and a half years and lived in it as your main residence for the last six months:

1. The gain attributable to the period of letting is £95,000.
2. The amount of the main residence relief is £30,000 (last three years in any event).
3. The maximum letting relief is £40,000.

The letting relief is the lowest of those three figures, £30,000 that added to the main residence relief of £30,000 means that only £40,000 of the gain of £100,000 is not exempt. Then you can deduct taper relief and the annual exemption to get the taxable gain.

Other extensions of relief

If the dwelling house was your main home both before and after a period of absence, you can claim the relief for period of absences of up to 3 years for any reason, any period working wholly outside the UK and up to 4 years where your employer makes it a condition of your employment that you live elsewhere.

Multiple homes

If you have two or more homes, the main residence relief applies to the one that is in fact your main home. If challenged this will be a matter of evidence. Alternatively, within two years of acquiring the second home, you can submit an election to HM Revenue & Customs saying which one you choose to be treated as your main home.