Going home: Maximising PPR relief by moving back

Sarah Bradford explains how qualifying absences can reduce the capital gains tax bill on the sale of a former home. 

If you have lived in a property at any point as your only or main residence, you may qualify for principal private residence (PPR) relief for certain periods during which you were not actually living in the property.  

This can be particularly useful from a tax saving perspective, reducing the capital gains tax (CGT) payable on any gain realised on disposal. 

Nature of PPR relief 

PPR relief is a CGT relief, which means that you do not pay CGT on any gain that relates to a period for which a property was your only or main residence. A person can only have one ‘main’ residence for CGT purposes at any time, and married couples and civil partners can only have one main residence between them. Further, a property can only count as a main residence if it is actually occupied as a residence. 

Occupying a property as an only or main residence opens the door to further periods of PPR relief. 

Final nine months of ownership 

Where a property has at some time been occupied as the owner’s only or main residence, the gain attributable to the last nine months of ownership qualifies for PPR relief regardless of whether the property is actually occupied as a main residence during that time.  

This nine-month period is increased to 36 months where, at the time of the disposal, the owner is a disabled person or a long-term resident of a care home, as long as they do not own or have an interest in another residential property. In this context, a person is regarded as a long-term resident of a care home if they have been, or are expected to be, resident in a care home for at least three months. 

Qualifying absences 

Private residence relief is also available in respect of the gain relating to certain periods of absence. These include periods when the owner or their spouse was unable to occupy the property as their main residence because they were working elsewhere, and a limited period of absence for any reason. 

Employment-related absences 

Subject to certain conditions, the gain relating to the following periods of absence may qualify for PPR relief. 

1. Any period of absence throughout which the individual, or their spouse or civil partner with whom they live, worked in an employment or office, all the duties of which were performed outside the UK.  

2. Any period of absence not exceeding four years (or periods of absence which together do not exceed four years) throughout which the individual was prevented from living in the property because of the situation of their place of work, or because of a condition reasonably imposed by their employer requiring them to live elsewhere for the purposes of their employment in order to ensure that the duties of the employment are performed effectively. 

3. Any period of absence not exceeding four years (or periods of absence which together did not exceed four years) in which the individual lived with a spouse or civil partner who was prevented from living in the property because of the situation of their place of work, or because of a condition reasonably imposed by their employer requiring them to live elsewhere for the purposes of their employment in order to ensure that the duties of their employment are performed effectively. 

To access PPR relief for absences for these reasons, the individual must have occupied the property as their only or main residence prior to the absence. They must also occupy it after the period of absence as their only or main residence, unless they were prevented from doing so as a result of the situation of their place of work or that of their spouse or civil partner with whom they live or because of a condition reasonably imposed by the terms of their employment, or that of their spouse or civil partner with whom they live, to ensure the effective performance of the duties of their employment. 

Absence for any reason 

The legislation also allows the gain attributable to a period of absence for any reason not exceeding three years (or periods of absence which together do not exceed three years) to qualify for PPR relief as long as the owners lived in the property as a main residence before the period or periods of absence and after the absence. 

This can be useful from a tax planning perspective, as moving into a former home as a main residence prior to disposal can potentially reduce the CGT payable on any gain. 

The taxpayer can take benefit from both employment-related absences and other absences in relation to the same property. 

Case study 1: In and out 

Michael purchased a cottage for £300,000 on 1 January 2010. He lived in it as his main residence until 31 December 2015, after which it was let until 31 August 2022 while Michael was living with his girlfriend. After splitting up with his girlfriend, he moved back into the cottage for six months while waiting for his new home to be ready, moving into his new home on 1 March 2023. Michael let the cottage for a further year, selling it on 29 February 2024 for £480,000. 

Michael owned the cottage from 1 January 2010 until 29 February 2024 – a period of 170 months. PPR relief is available as follows: 

123/170ths of the gain of £180,000 qualifies for PPR relief, equal to £130,235, leaving only £49,765 in charge. 

Had Michael not moved back into the cottage, he would have lost relief for not only the period for which he lived in the property a second time, but he would also have not benefitted from the three-year period of absence for any reason. This would have reduced the period qualifying for PPR relief to 81 months (72 months of occupation as his only or main residence plus the last nine months), increasing the chargeable gain to £94,125. Assuming Michael had already used his annual exempt amount for 2023/24 and that he was a higher-rate taxpayer, moving back into the property saved him CGT of £12,420 (i.e., £44,360 at the 2023/24 residential rate of 28%).  

Case study 2: Home and away 

Joanna purchased a flat in Nottingham on 1 June 2016 for £180,000, which she lived in as her main residence until 31 October 2018. She is then sent to Paris to work by her employer. She lets out the property while she is away. She returns to the UK in March 2022, when she is sent by her employer to work in Edinburgh. She sells the flat on 31 May 2024 for £300,000, realising a gain of £120,000. 

She owned the property for 8 years (96 months), of which she lived in it for 29 months as her main residence. As she was sent by her employer to work abroad and because of her work situation, was unable to return to occupy the flat as her main residence, she benefits from private residence relief for a further four years (48 months). As the property has been occupied as her main residence at some point, the last nine months’ gain also qualifies for PPR relief. 

In total, PPR relief is available for the gain attributable to 86 months of ownership, leaving only that attributable to seven months (£8,750) in charge, of which £3,000 is sheltered by her annual CGT exempt amount. 

Practical tip  

Consider occupying a former home prior to sale to benefit from taking advantage of the ‘three-year absence for any reason’ rule.