Principal Private Residence (PPR)

If you own property and are resident in the UK for tax purposes when you sell the property there could be a liability in the form of capital gains tax or income/corporation tax if you are a property developer.

The most notable exception to this general rule is if the property you are selling is your principal private residence. For most of us this is our home, the place where we live. Of course some of us, including certain Members of Parliament, may own more than one property. In which case how does the PPR rule apply?

The answer, as you would expect, is complicated. Generally speaking if you own two properties only one can be considered your PPR at a particular point in time. In the absence of making an election this is determined based on the facts – generally the property used more. However you can make an election to choose which property is treated as your PPR within 2 years of acquiring a second residence. Having made the election it can be changed at any time and backdated 2 years. Why would you do this? The main tax advantage is that PPR status exempts the last three years of ownership from CGT – in some circumstances other tax breaks may apply if the property has been let. You will need evidence that you actually took up residence in the second property.

If you have a second property and spend reasonable amounts of time in residence this is a strategy you may want to consider especially if your intention is to sell one of the properties in the medium term.
Other aspects of the PPR relief that readers may find interesting are set out below:

1. If you retain part of the land that made up your garden and sell it after you sold the house, the gain on the disposal of the garden would be taxable.
2. If there is a delay in moving to a dwelling house at the start of a period of ownership, HMRC will accept PPR status for the property as long as the delay is generally not longer than one year. In exceptional circumstances HMRC will extend this limit to two years but no longer than this.
3. If you are absent from your PPR for a period, perhaps to work overseas, HMRC will accept that the period of absence will not affect PPR status for the time you are away. You will need to demonstrate that you were in residence both before and after the period away.
4. If when a couple marry or enter into a Civil Partnership both own a property, it is important to consider appropriate tax planning and make a formal election to formalise which property is to be considered their PPR. Married couples or Civil Partners can only have one PPR between them. A formal election has to be made within two years of marriage or entering into a Civil Partnership.