Private Residence Relief (PRR) is a valuable Capital Gains Tax relief that can help reduce the amount of tax you need to pay when selling a buy-to-let property. This guide aims to provide an overview of how the relief works and the eligibility criteria to help you benefit from it.
Determining Eligibility for Private Residence Relief
To qualify for Private Residence Relief, the property you are selling must have been your main home. There is also a possibility of qualifying for relief if you are disposing of a residence provided for a dependent relative. However, if you are selling a second home or a buy-to-let property, you will generally have to pay Capital Gains Tax on any profit made from the sale. There might be some relief available if you have previously lived in the property.
It’s important to note that if you purchased the property solely for investment purposes or for business use, you will not be eligible for any tax relief.
Capital Gains Tax Implications for Second Homes
When you sell a second home that has increased in value, you will be liable for Capital Gains Tax on the gain made from the sale. However, there are certain factors that could provide you with relief, including:
- If the property was your main residence at any point.
- If you let part or all of the property.
- If the property was used for business purposes (excluding using a spare room as an office).
- If the grounds cover an area of less than 5,000 square meters.
Calculating Private Residence Relief: A Simple Breakdown
As a landlord, the amount of relief you can receive depends on the financial gain you make from selling your property and the duration of your residency. Full relief can be claimed for:
- The years you lived in the property.
- The last nine months you owned the property, even if you weren’t residing there at the time of the sale.
Navigating Private Residence Relief Duration
Until April 2020, if you sold a property between 6th April 2014, and 6th April 2020, you were eligible for relief on the last 18 months of ownership. However, since April 2020, this relief has been limited to the last nine months after you move out.
Combining Private Residence Relief and Letting Relief
Following changes in April 2020, Letting Relief is only available to landlords who share occupancy with tenants. If you let out part of your home while residing in it as your main residence, you can claim both Private Residence Relief and Letting Relief when you sell your property.
To calculate Letting Relief, you need to determine the proportion of your home that is rented out. If eligible, you can receive up to £40,000 in Letting Relief.
Fulfilling Your Obligations to HMRC
Once you have determined the relief you are eligible for, it is important to report any Capital Gains Tax to HMRC by 31st January of each year. For more detailed information on Capital Gains Tax for landlords, consult our comprehensive guide.
Please note that tax matters can be complex, so this guide should be used for informational purposes only. It is always advisable to seek professional advice tailored to your individual circumstances.