Principle Private Residence relief and land development gains

by Robert Leggett

What is PPR relief?

PPR can relieve from Capital Gains Tax (CGT) all or part of a gain that relates to the sale of an individual’s main home.

When does PPR relief apply?

There are of course conditions that need to be met for PPR to apply to any sale, including: –

  • The relief is available in respect of a residential property that has at any time during the period of ownership been the taxpayer’s only or main residence.
  • The relief also covers gardens and ground up to 0.5 hectares.  This can potentially be extended where it can be shown that further grounds are required for the reasonable enjoyment of the property.  An example where the area could be extended would be a stately home; you would expect that such a property would require extensive grounds and gardens in excess of 0.5 hectares.
  • You cannot have two main homes at any one time.

PPR is only available for periods where the property has been occupied as the taxpayer’s main home.  Where the property has not been occupied throughout the entire period of ownership, then a portion of any gain will be subjected to tax.

Calculation of PPR relief

Where PPR is available on a property it is necessary to construct a timeline which covers the period of ownership.  You need to identify periods of time that the property has been occupied as the taxpayer’s main home, or where occupation is deemed under the legislation.

Periods of occupation (actual or deemed) are relieved under the PPR provisions, and periods of non-occupation are chargeable to tax.

Where the property has been occupied throughout its ownership PPR relief could cover all of the gain and as such no tax might be due.

Letting relief

Where a property that is an individual’s main home at any point during the period of ownership is let out for a period, then Letting Relief is also available to reduce the gain.

The amount of letting relief is the lower of:

  1. The gain relating to the let period as a proportion of total ownership.
  2. The amount of PPR relief available.
  3. £40,000.

Scenario 1

Mr Jones purchased a property in Cambridge Road for £300,000 in April 2006.  He lived in the property as his only home until April 2012.  From May 2012 Mr Jones purchased a further home with his then wife and moved out of the Cambridge Road property.  The property in Cambridge Road was let out from May 2012 to May 2018 when it was sold for £600,000.

Mr Jones has owned the property for 12 years. 

He occupied the property for 6 years (April 2006 to April 2012).

He is automatically deemed to have occupied the property for the last 18 months of ownership under the legislation.

His total deemed occupation is therefore 7.5 years of the 12 years of ownership.

The property was let out for 4.5 years (6 years May 2012 to May 2018 less the last 18 months of ownership as this is deemed to be occupation).

As Mr Jones let out the property during his period of ownership, he is entitled to letting relief equal to the lower of;

  1. The gain relating to the let period = 112,500 (gain of £300,000 * 4.5 years / 12 years)
  2. The PPR relief available = 187,500 (gain of £300,000 * 7.5 years / 12 years)
  3. £40,000.

In this case the gain is calculated as follows: –

  £  £ £
Proceeds   600,000    
 Less cost of purchase  (300,000)    
 Gross gain   300,000   
 Less PPR relief    (187,500)  
 (300,000 * 7.5/12)      
 Less letting relief    (40,000)  
 (as above)      
 Taxable gain     72,500 


PPR and land development

Claiming PPR on a disposal of development land can be problematic, it is very much dependent on the facts of the individual case. 

In brief, the permitted area which would normally attract PPR is relatively modest.  Justification needs to be provided if the relief is sought on a larger area.  This can be difficult; in many cases, part of a much larger garden is sold off for development.  One might argue that it should get PPR on the basis that is was garden that was required for the reasonable enjoyment of the property.  However, if it is required for the reasonable enjoyment of the property, how can it be sold of separately?!  

The facts and circumstances in respect of such a sale are determinant of whether the relief is due and it is advisable that advice is sought.

Scenario 2

Mrs James purchased a house in 2006 for £500,000.  The property has land attached to it of 0.5 hectares which has been used as garden.  Mrs James has lived in the property with her family since purchase and it is their only home.

Planning permission to build a further 2 houses on the site of their property is granted in May 2017.

Mrs Jones sells the whole property, including the house, with the planning permission for £1.2m.

As Mrs Jones has occupied the property throughout the period of ownership as her main home, and that the land attached to their house is within the permitted area, full PPR relief should be available to offset against any gain on the disposal.  As such, there should not be any CGT associated with the sale.

Scenario 3

Mr James purchased a house in 2006 for £700,000.  The property has grounds attached to it of 1 hectare.  Mr James has lived in the property since purchase and it is his only home.

Planning permission to build a further 2 houses on the site of the property is granted in May 2017.

Mr James agrees to sell the land which is subject to the planning permission and retain the house and the remaining land.

In this case, a claim for PPR relief could be more difficult. As the land is in excess of the permitted area of 0.5 hectares, the facts and circumstances will determine whether the land which is being sold is ‘garden and grounds’ for the purposes of a PPR claim on the land sale.

HMRC could quite reasonably take the view that as the land is being sold, it is not reasonably required for the enjoyment of the property and does not therefore represent garden or grounds of the property and could challenge any claim for PPR.  Of course, some of the land being sold might fall within the 0.5 hectares permitted area, so some sort of apportionment of the sale price might be required; this apportionment can be open to debate.

The facts and circumstances would need to be considered in detail to ascertain whether a claim for PPR would be appropriate.

If PPR is available on the land sale no CGT will be due on the sale.  If, however, only partial or no PPR is available Mr James could be looking at a substantial tax liability.

Wrap up 

PPR relief is valuable, but it is important to remember that there are conditions attached.

As PPR can greatly reduce tax liabilities on property which has historically been subject to substantial capital appreciation, it is an area that HMRC do challenge and there is extensive case law on its availability.

Penalties could be charged if relief has been claimed carelessly, and it is always better to consider its availability at the time of the disposal rather than trying to justify any claim retrospectively.  Early professional advice is important.

Here at Ensors we have the experience of dealing with the complexities of these transactions and orchestrating the team of professional advisors; accountants, lawyers and surveyors, to get the best result for landowners large and small.



Robert Leggett

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