Introduction
When an individual sells their home, Private Residence Relief (PRR) can exempt all or part of the capital gain from Capital Gains Tax (CGT).
A common misconception is that PRR is available only for periods during which the owner physically occupied the property. However, the legislation provides for certain periods of “deemed occupation”, allowing relief even when the owner was living elsewhere.
These rules can significantly reduce the taxable gain where a property has been temporarily let or where the owner has had to live elsewhere for work.
What is Deemed Occupation Relief?
Deemed occupation allows specific periods during which the owner was absent from the property to be treated as periods of occupation for the purposes of Private Residence Relief.
The relief is available only where certain statutory conditions are satisfied.
Conditions for Deemed Occupation
In most cases, the property must have been occupied as the owner’s only or main residence both:
- before the period of absence; and
- after the period of absence.
The requirement to reoccupy the property after the absence is waived where returning is prevented because the individual continues to work away from home.
Qualifying Periods of Absence
1. Absence for Any Reason – Up to Three Years
An individual may treat periods of absence for any reason, totaling up to three years, as periods of occupation.
Examples include:
- living in rented accommodation;
- caring for family members;
- travelling;
- temporarily relocating.
The three years are cumulative over the entire period of ownership.
2. Working Elsewhere in the UK – Up to Four Years
Where employment requires the individual to live elsewhere in the UK, relief is available for absences of up to four years, provided:
- the distance from work makes living at the property impractical; or
- the employer requires the employee to work away from home.
Again, occupation before and after the absence is normally required.
3. Working Outside the UK
Where the owner is required to work overseas, the entire period of absence may qualify as deemed occupation.
Unlike the previous categories, there is no statutory maximum period.
If employment prevents the owner from returning to the property afterwards, the requirement to reoccupy the property is relaxed.
Final Period Exemption
Regardless of the periods of absence, an individual is generally entitled to relief for the final nine months of ownership, provided the property has been their only or main residence at some point during ownership.
This rule applies even if the property is vacant or let during the final nine months.
