Capital Gains Tax (CGT) on the sale of UK residential property can result in substantial tax liabilities, particularly where there has been a significant increase in value over time. However, Principal Private Residence Relief (PPR), governed by sections 222 to 226B of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), may eliminate or substantially reduce the gain subject to tax, provided certain conditions are met.

PPR operates on the principle that a person should not face CGT on the disposal of their home, assuming that the property was genuinely occupied as a main residence. While conceptually simple, the statutory rules and their interaction with case law, non-residence, and periods of absence have become increasingly complex.

Legislative Basis and Key Requirements

Under section 222(1)(a) TCGA 1992, PPR is available where a dwelling-house (or part thereof) has been the individual’s only or main residence at any point during the period of ownership. The term “residence” is not statutorily defined for these purposes, and instead carries its ordinary meaning, clarified by case law.

The courts have established that residence implies “some degree of permanence, some degree of continuity or some expectation of continuity,” as articulated in Goodwin v Curtis [1998] STC 475. Short stays or purely preparatory occupation, such as cosmetic refurbishment without genuine intention to settle, will not qualify.

For individuals claiming PPR, evidence of residence is critical. Utility bills, correspondence sent to the property, council tax records, and the furnishing and usage patterns can all support a claim that the occupation was sufficiently permanent to meet the statutory test.

The Final Period Exemption and Permitted Absences

Even if the property ceases to be the main residence prior to sale, section 223(1) TCGA 1992 provides for a “final period exemption” covering the last nine months of ownership. For disabled persons or those in care homes, this period extends to 36 months under section 225E.

In addition, certain absences are deemed periods of residence provided the individual occupied the property as their main residence both before and after the absence. These include:

  • Up to three years for any reason (s223(3)(a)),
  • Any period during which the owner was employed abroad (s223(3)(b)),
  • Up to four years where employment required residence elsewhere in the UK (s223(3)(c)).

For periods of overseas employment, the relief is preserved even if reoccupation does not occur, provided the individual was unable to return due to employment obligations (s223(3A)–(3B)). This protection stems from former Extra-Statutory Concession D4, now embedded in legislation.

Interaction with Residence Status: The SRT and Non-Qualifying Periods

Since the Finance Act 2015, the availability of PPR has been restricted for non-resident individuals. For disposals on or after 6 April 2015, a dwelling-house is treated as not having been occupied as a residence during any tax year in which the individual was neither tax resident in the jurisdiction where the property is located, nor physically present in the property for at least 90 days (known as the “territorial residence” and “90-day” tests).

Tax residence is determined by the Statutory Residence Test (SRT), introduced in Finance Act 2013 and now enshrined in Schedule 45 of FA 2013. The SRT applies in assessing whether the individual was UK-resident in a given tax year, with implications for the availability of PPR in cross-border scenarios.

Non-resident CGT (NRCGT) rules, now consolidated into the general CGT regime for non-residents since FA 2019, continue to interact with PPR through required declarations and reporting obligations within 60 days of disposal (Finance Act 2019, Sch 2, para 3(1)).

Lettings Relief and Mixed Use

Lettings relief, previously a generous extension of PPR, was substantially restricted by the Finance Act 2020. It now applies only where the owner shares occupation with the tenant under non-commercial arrangements (s223B TCGA 1992). Relief is capped at £40,000 but is no longer available in typical buy-to-let scenarios.

Similarly, relief is denied under section 224(1) where part of the property has been used exclusively for business. Shared use (such as a home office) may still permit partial relief, but exclusive business use will restrict the exemption.

Purpose of Acquisition and Denial of Relief

PPR is also denied where a property was acquired or improved wholly or partly for the purpose of realising a gain on disposal (s224(3) TCGA 1992). While most homeowners hope for property appreciation, HMRC only applies this restriction where the main motive was a short-term profit, often evidenced by redevelopment and prompt sale. In some cases, HMRC may seek to tax the gain as trading income under the badges of trade doctrine (see Ramsay v HMRC [2013] UKFTT 563).

Multiple Residences and Nominations

Where an individual owns more than one residence, a nomination can be made under section 222(5) to determine which qualifies as the main residence. The nomination must be made within two years of a change in the combination of residences. If no election is made, HMRC will decide based on the factual pattern of occupation.

Spouses and civil partners may only have one main residence between them for PPR purposes (s222(6)), and any nomination must be made jointly. This limitation continues to apply even if the couple is separated but not yet divorced, unless the transfer of interest occurs under a court order or formal separation (s225B and s225BA, as amended by FA 2023).

Trusts, Personal Representatives and Special Cases

Trustees can claim PPR under section 225, but only if the property was occupied as a main residence by a beneficiary entitled to reside under the terms of the trust. Similarly, personal representatives can claim relief under section 225A if the deceased’s property was occupied as a residence immediately before and after death, and the beneficiary entitled to proceeds holds at least 75% of the beneficial interest.

For periods before 6 April 1988, relief may also apply to properties occupied by dependent relatives under Extra-Statutory Concession D20, now reflected in s226 TCGA 1992.

Conclusion

Principal Private Residence Relief remains a powerful tool for mitigating CGT exposure, but it is not unconditional. The rules are increasingly nuanced, especially for non-residents, landlords, divorcing couples, and trust structures. With HMRC adopting a forensic approach to residence claims (as illustrated in Oliver v HMRC [2016] UKFTT 796), early advice and clear documentation are essential.

Whether planning a sale, nominating a main residence, or considering use of a property in a trust, understanding the statutory framework and evidential requirements is key to securing the relief.