Private residence relief

Produced by Tolley

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

  • Private residence relief
  • Conditions for relief
  • Restrictions to the amount of relief
  • Letting relief
  • More than one residence
  • Non-UK resident trusts and beneficiaries
  • Is the beneficiary entitled to occupy the property?

Private residence relief

Conditions for relief

The gain on the sale of a residential property (together with its grounds) held in trustwill be wholly or partly exempt if, during the period of ownership by the trustees:

  1. the property has been occupied by a beneficiary of the trustas his or her only or main residence, and

  2. the beneficiary in question is entitled to occupy the property under the terms of the trust(discussed at the end of this note)

TCGA 1992, s 225

A similar relief is available on the disposal of a property by the personal representatives of a deceased person. See the Capital gains tax during administration guidance note.

The relief is only available to trustees if a claim is made. It does not apply automatically as with individuals. A claim must be made within four years of the tax year in which the disposal occurred.

The so-called principal private residence (PPR) relief is an exemption rather than a relief. Accordingly, any loss to which the exemption applies is not an allowable loss, just as any gain is not a taxable gain.

Restrictions to the amount of relief

If a gain arises, the relief is calculated in the same manner as that for individuals, except that conditions relating to the occupation of the residence apply to the beneficiary. Therefore, where a property has been occupied, throughout the period of ownership by the trustees, by a beneficiary entitled to occupy it under the terms of the trust, the gain will be fully exempt. As for individuals, the relief may be restricted if:

  1. part of the property has not been used as a residence

  2. the property as a whole extends to more than half a hectare and the grounds extend beyond what is reasonably required for the enjoyment of the property

  3. the beneficiary in question has not occupied the property for the whole of the period that it has been owned by the trustees

In the latter case, the gain

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