Principal private residence relief ― anti-avoidance

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Principal private residence relief ― anti-avoidance
  • Non-qualifying tax years
  • Exclusive business use of part of the residence
  • Intention to make a profit
  • Pre-owned asset tax

Anti-avoidance provisions exist to prevent taxpayers from abusing the generous principal private residence (PPR) relief provisions to avoid paying capital gains tax on their houses.

The anti-avoidance provisions apply where:

  • the tax year is non-qualifying for the taxpayer
  • there is exclusive business use of part of the residence
  • the residence was acquired with the intention of making a profit

Also considered in this note is the application of pre-owned asset tax where the family home is gifted in a scheme designed to avoid inheritance tax.

Non-qualifying tax years

The concept of a ‘non-qualifying tax year’ was introduced from 6 April 2015.

This was part of the consequential amendments necessary to charge UK CGT on disposals of UK residential property. The Government decided that, without this change, non-resident individuals could have taken advantage of the generous PPR rules to exempt a gain on UK residential property from UK CGT.

The change affects UK residents with overseas homes as well as non-residents with UK homes, although as the new rules only apply from April 2015, previous PPR elections made by UK residents have been ‘banked’, meaning that if an overseas holiday home has ever been the subject of a PPR election, it should qualify for relief for the last 18 months of ownership (expected to be reduced to nine months from 6 April 2020).

TCGA 1992, s 222B(2); Overview of tax legislation and rates 2018 , para 2.20

A dwelling cannot be treated as a ‘residence’ for the purposes of the PPR rules in any tax year (or part of a tax year if the dwelling was not owned for the entire year) in which:

  • neither the taxpayer nor the taxpayer’s spouse or civil partner is tax resident in the country in which the dwelling is situated, and
  • the taxpayer and / or the taxpayer’s spouse or

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