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TaxationWeb by Arthur Weller and Amer Siddiq

Property Tax Specialist, Arthur Weller and Property Investor, Amer Siddiq outline a very useful tax relief relating to the home.In this strategy you will become familiar with the extremely powerful private residence relief.

This allowance on its own can wipe out tens or even hundreds of thousands of pounds of your capital gains tax bill.

What is Private Residence Relief?

This relief is available to you if you have lived in a property that has been classed as your main residence for a period of time.

This relief is not available to you if you are a property dealer and purchased a property with the sole intention of making a dealing profit, i.e., you did not make it your main residence.

The technical name for a person’s main residence is principle private residence (PPR).

Tax Tip 1

If you have lived in a property that has been your PPR, then you are not liable to pay any capital gains tax on the price appreciation that is attributed to the period when you lived in the property.


There are two types of residence relief that are available, and both are described and illustrated in the following two sections.

Full residence relief

If the property has been classed as your PPR throughout your period of ownership, then you can claim full residence relief.

If you can claim full residence relief, then this means that you will have no CGT liability. This is regardless of the capital profit you have made on the property.

Every homeowner who has occupied their property since the first day of ownership up until the time of sale is entitled to use this relief.

Case Study 1: Full Residence Relief

Alex buys his first home in May 1990 for £65,000. He lives in it from the day of purchase up until the day he sells it in June 2001. The selling price is £150,000, which means that he has made a capital profit of £85,000.

He is not liable to pay any tax on this profit as he is able to claim full residence relief because the property was his main residence during his period of ownership.

Partial residence relief

You are able to claim partial residence relief if your property has been your main residence for a period of time but not for the whole period of ownership.

If you are claiming partial residence relief, then the amount of relief you can claim is determined by dividing the periods when the property was classed as your PPR by the total periods of ownership.

For example, if you purchased a property, let it out for 7 years and then lived in it for three years before selling it then you will be able to claim 3/10 partial residence relief. This is because you owned the property for 10 years, but it was your main residence for three of those years.

You are most likely to claim partial residence relief if:

- you have a second home;

- you are a property investor who has let a property after having previously lived in it.

How Long Do I Need to Live in a Property Before It Can Be Classed as My PPR?

This is one of the most commonly asked tax questions.

The reason for the popularity of this question is because if you can prove that a property was genuinely your PPR, you can make use of some very generous tax reliefs. You will see in the following strategies exactly how you can use these reliefs to your advantage to reduce or even wipe out any tax liability.

The Inland Revenue has not given any specific guidance as to how long you need to live in a property before you can claim that it has been your principle private residence.

However, as a general rule of thumb, you should try to make it your permanent residence for at least one year, i.e., 12 months.

The longer you live in a property, the better chance you have of claiming residence relief.

The Inland Revenue is not necessarily interested in how long you lived in the property. They are much more interested in whether the property really was your home and whether you really did live in the property!

If you want to claim this relief, here are some pointers that will help you to convince the taxman that a property genuinely was your private residence.

a) Have utility and other bills in your own name at the property address.

Typical bills will include:
- gas bills;
- water rates;
- electricity supply bills;
- council tax bills;
- TV licence, etc.

b) Make the property address your voting address on the electoral register.

c) Be able to demonstrate that you bought furniture and furnishings for the property. Keep receipts and prove that bulky furniture was delivered to the property address.

d) Have all bank statements delivered to the property address.

By following the above guidelines, you will be in a good position to convince the taxman that a property was genuinely your home.

The above article is an extract from '27 Proven Property Tax Saving Strategies', a New Tax Guide launched by the Property Tax Portal, jointly written by Property Tax Specialist, Arthur Weller and Property Investor, Amer Siddiq.

For more details please visit: www.taxationweb.co.uk/propertytax/property_tax_strategies.php