SarahBeenySpringIssue2017 - 71
building on the
market can be
a big enough
to worry about
tax - but private
can help reduce
the amount you
may have to pay.
period of time when
you weren't in residence
is likely to be taxable.
How PRR can
reduce your tax
more tax than
you need to!
home (such as a buy-to-let property),
then a CGT liability is likely to arise.
Married couples and civil partners can
count just one property between them
as their main residence. If someone uses
two or more homes at the same time,
even if one is only rented, they should
nominate one as their main residence.
If you didn't live in the home for the
whole time, the proﬁt relating to the
British individuals get an
annual exempt amount of
£11,100 before having to
pay tax on their income
- this can be used in
If you are liable for CGT tax on
your property, the application of
private residence relief (PRR) can help
to reduce your tax bill.
You are able to claim it for the time
that you lived in the property. Here's an
example of how it's applied...
George sells his property, and
after deducting allowable expenses,
makes a gain of £100,000. He had
owned the property for 20 years,
but let it out to tenants for 12 years.
During that time, he'd spent a
year and a half working abroad.
The last 18 months of ownership
aren't subject to tax either.
George can therefore claim
PRR for the eight years he was
in residence, plus he can claim
the relief for the 11/2 years when
he was working abroad, and for
the last 11/2 years of ownership,
making 11 years in total.
This means 11/20ths of the gain
are covered by the application of
PRR, and the remaining 9/20ths
of the gain is potentially taxable.
Lettings relief can help
There is also tax relief for homeowners
who rent out their property. In some
circumstances, lettings relief can reduce
or remove the liability entirely. The
maximum relief allowable is £40,000,
and you cannot get more letting relief
than PRR. Here's an example...
Brian makes a gain of £60,000 on
a property that he let out for the ﬁrst
60% of the time he owned it, before
moving in himself
later on. He gets
PRR equivalent to
40% of the gain
- which works out as
£24,000. So, £36,000 of
his gain is subject to CGT. His
lettings relief is therefore limited to
£24,000, reducing his gain to £12,000
on which tax will be payable.
The value of good advice
PRR is one of the most valuable tax
breaks on offer to property owners, but
its application can be complex and the
examples given here are for general
illustrative purposes only.
Everyone's situation will be different
and there are other tax issues to consider,
such as continued inheritance tax (IHT)
protection if you're trading down, or
avoiding a stamp duty land tax (SDLT)
surcharge if you own another property.
Getting timely professional advice
will help clarify your position from the
outset, and give you a clear idea of the
tax you may have to pay.
FOR MORE INFORMATION
Call 020 7388 7000