Investment Property Accountants - WARR & CO

Investment Property Accountants

Property Investor Tax Relief –

Private Residence Relief

The purpose of private residence relief is to exempt from tax any gain accruing from the disposal of a dwelling house, together with its garden or grounds, to the extent that it has been used as its owners only or main residence. The proportion of the gain that is exempted is determined by the proportion of the period of ownership in which the property has been so used. Where a property has been used as a main residence for the entire period of ownership, the property may be sold with no Capital Gains Tax (CGT) liability arising.

Where a property is a private residence for only a part of a period of ownership, the amount of relief available is computed by dividing the period in which the property was used as its owners only or main residence, together with the final 36 months, by the total period of ownership.

An example of this can be illustrated below: -

Property purchased in May 1998 for £100,000
Property is the only or main residence from May 1998 until May 2002
Property sold in May 2008 for £250,000

Disposal proceeds £250,000
Less Cost of purchase £100,000
Gain £150,000

Period of ownership – 120 months
Period of ownership as private residence = 48 months + Final 36 months

Relief = 48 + 36 = 84 / 120 = 0.70 x £150,000 = £105,000

Chargeable gain before annual exemption = £150,000 - £105,000 = £45,000

The effect of the relief is to determine how much, if any, of the gain computed in the usual way and arising on the disposal of the residence is a chargeable gain.

It is for this reason that where a former residence is then rented out, that providing the property is sold within 3 years, no CGT liability will arise.

Please note that if the property is used for part or all of the final part of the period of ownership as its owner’s only or main residence, that period may qualify for relief both as a period of residence and as part of the exempt final period.

It must be noted that there are legitimate periods of absence from a property that may still be eligible for private residence relief and these will be covered shortly under a separate article.

If, during the period between May 2002 until the property's eventual disposal, the property was rented out, then lettings relief may apply. This too will be covered in a future piece.

If of course you wish to discuss any of these further reliefs, please feel free to contact us.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Date of Article: 20th October 2008

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This domain is owned by Warr & Co Chartered Accountants which is a member of the Institute of Chartered Accountants in England & Wales (ICAEW). Whilst the information detailed here is updated regularly to ensure it remains factually correct, it does not in any way constitute specific advice and no responsibility shall be accepted for any actions taken directly as a consequence of reading it. If you would like to discuss any of the points raised and / or engage our services in providing advice specific to your personal circumstances, please feel free to contact Peter Edwards on 0161 477 6789 or email us at