Personal Tax

Principal private residence relief ― anti-avoidance

Produced by Tolley
  • 19 Oct 2021 22:37

The following Personal Tax guidance note Produced 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
  • Home office
  • Adult placement carers
  • Lodging business
  • Intention to make a profit
  • Pre-owned asset tax

Principal private residence relief ― anti-avoidance

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:

  1. the tax year is non-qualifying for the taxpayer

  2. there is exclusive business use of part of the residence

  3. 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.

This 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 nine months of ownership (the last 18 months of ownership for disposals between 6 April 2014 and 5 April 2020).

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:

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

  2. the taxpayer and / or the taxpayer’s spouse or civil partner is physically present in that dwelling (or any other dwelling in that country) for less than 90 ‘days’ in the tax year (with the 90-day threshold pro-rated if

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