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Principal Private Residence (PPR) is an attractive tax relief, particularly for those who have benefitted from huge market growth on the properties they own.
In a nutshell, the main condition being if the person has occupied the property at some point during the period of ownership, the relief provides the ability to exempt all or part of the gain arising on these properties, resulting in large savings for the taxpayer.
Occupation can mean actually ‘living’ in the property for a period of time, but can also be ‘deemed occupation’ whereby certain periods of absence still qualify.
However, it is very important to note that a period of absence can only be treated as a period of deemed occupation if it was both preceded and followed by a period of actual, physical occupation. The only exception to this is for the last 9 months of ownership, provided once lived in the property at some point prior. This was previously changed from 18 months confirmed in the Finance Bill 2019/20.
Quality of occupation
Lately, we are seeing more challenges from HMRC against, what they see as speculative claims for this relief. Too often, taxpayers believe that simply ‘living’ in a property is enough. However, certain conditions should be satisfied. Predominately, where disputed by HMRC the taxpayer will be required to show that the quality of their occupation was sufficient for it to be considered their main residence.
In Samsom v Paey (1976) this was summarised – “to exempt from liability to capital gains tax the proceeds of sale of a person’s home”.
This quote emphasises the point that the test of residence is one of quality over quantity through the use of the word ‘home’ rather than ‘residence’.
So how do Tribunals assess the quality of occupation?
Strictly speaking, there is no definitive answer. However, there are certain factors that must be considered in conjunction with supporting evidence;
Here is a list of factors that may either point towards a period of occupation or a period of non-occupation:
If you’re unsure about your clients’ residential circumstances and want to find out if your client is eligible for PPR Relief, please call us on 0161 711 1320 or email us at email@example.com to speak to one of our specialist tax advisers.