Most people assume that when you sell your home, there is no tax. Are they right? Tristan Noyes explores when they could be wrong or right twice!
In 2024, Angela Rayner was asked whether she paid tax on the sale of her ex-council house. She said no because it was her main residence, which was exempt from capital gains tax CGT). Like many people, she assumed that selling her home resulted in no tax.
In many cases, this is correct; if you have one house with a modest garden and live in it throughout, any capital gain will normally be exempt from capital gains tax (CGT) due to main residence relief, more commonly known as principal private residence (PPR) relief.
Not fully covered?
However, full exemption is not guaranteed. The gain must be apportioned where:
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part of the property is not used exclusively as a residence (e.g., if part of the building is used as a shop or office). The word ‘exclusively’ avoids problems for people working from home, as typically, you would not have an area dedicated exclusively to your work;
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you’ve had periods where you did not live there (e.g., if you rented it out while you lived elsewhere). The gain is split between the periods of occupation and non-occupation, with only the occupied portion being exempt. However, some periods can be deemed as periods of occupation; or
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the garden exceeds 0.5 hectares, unless you can demonstrate the larger garden is required for the proper enjoyment of the property.
This apportionment results in only part of the gain being exempt and the non-occupied period remaining liable to CGT at 24% (for 2025/26).
Deemed occupation
Any capital gain must be apportioned (on a time basis) between periods of occupation and non-occupation. Some periods are treated as if you occupied the property even if you did not. These periods are:
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the final nine months of ownership; these are always treated as occupied;
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up to 24 months from the purchase date if you could not move into the new property because it was still being built, renovated, altered, etc., or if you were waiting to sell your old home and still living there;
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up to three years of absence (in total) for any reason;
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up to four years if your employer requires you to live elsewhere for the performance of your duties; and
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any amount of time if your employer requires you to work fully outside the UK.
The effect of these deemed periods is the possibility of claiming PPR relief on two or more properties concurrently. However, the last three deemed periods only apply if you lived in the property both before and after the non-occupation – creating a heavy incentive to move back into the property and unlock the extra PPR relief.
Quality not quantity
A question often asked of tax advisers is: “how long do you have to live in, or move back into, the property to claim the PPR reliefs”?
The legislation is not prescriptive on this point, but the case law is clear that it is the quality of occupation which is important. So, a period of a few months where the property is clearly a home could qualify. But a longer period may not qualify if the evidence suggests the use is transitory or not substantive, such as in some of the cases brought by property developers who hoped to exempt the gain on a development using PPR relief.
Many advisers suggest that at least six months is required.
Multiple residences
Only one home can be your ‘main’ residence and attract PPR relief. If you have more than one home, you can elect which one you want to qualify, failing which the decision is made based on the facts.
The election must be made within two years of first having two residences, but can then be varied at any time. This gives some interesting planning opportunities to unlock PPR relief on multiple properties.
Example: PPR relief elections
Bill owns three properties: a house in Bristol bought for £400k in July 2014; a flat in London bought in July 2022 for £800k; and a cottage in Cornwall bought in July 2023 for £400k. He uses all three as homes, splitting his time between them.
In March 2024, Bill started planning his retirement. In June 2024, he sold the Bristol house for £900k (a gain of £500k), and the London flat for £1m (a gain of £200k). In June 2025, he sold the Cornwall cottage for £550k (a gain of £150k).
Without an election, it’s likely HMRC will argue that the Bristol house is the main residence and exempt the £500k gain, with the £200k London gain fully taxable. But in March 2024, Bill is in time to make an election to determine his main residence. If he elected for London to qualify effective from purchase in July 2022, the £200k London gain becomes fully exempt.
However, now the Bristol gain is only partially exempt. Bill can claim the first eight years and the final nine months, meaning 8.75 years out of the full ten years of ownership, resulting in a gain of £62,500 – much lower than the (now exempt) £200k gain on the London flat.
After selling London and Bristol, the Cornwall cottage becomes the PPR for 12 months until the sale. As he owned it for two years, he can claim 50% PPR relief, leaving £75,000 taxable.
But, because Bill has planned carefully, after electing the London flat as his main residence, he immediately varied the election, moving the PPR to the Cornwall cottage effective from October 2023. The gains on London and Bristol are unaffected because the final nine months are always exempt, but the Cornwall property is now exempt for 1.75 years out of the full two years of ownership, leaving only £18,750 taxable.
Without the elections, Bill would realise gains of £nil on Bristol, £200k on London, and £75k on Cornwall (total £275k).
After the elections, the gains are £62,500 on Bristol, £nil on London, and £18,750 on Cornwall (total £81,250). This reduces his gains by over £193k, and from October 2023 to June 2024, he had three properties qualifying for PPR relief.
Married couples
It is important to remember that married couples can only have one main residence, and elections must be given by both spouses.
It was this rule which got Angela Rayner into hot water, as she had moved into her husband’s home and assumed that her previous home would continue to be exempt because she only owned one property.
Too good to be true?
As the example shows, the combination of deemed periods of occupation and the careful use of elections can generate substantial tax savings. But would HMRC challenge this?
Whilst it might seem too good to be true, the examples in the general anti-abuse rule (GAAR) guidance specifically reference taxpayers claiming PPR relief on multiple properties as something which is not abusive. So, HMRC is unlikely to challenge the use of elections; however, it will carefully investigate whether the properties really were residences (looking at the quality of the occupation).
Other points
Here are a few other points to bear in mind with PPR relief:
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While PPR relief can exempt a capital gain, do not forget it also makes a capital loss unallowable. Any loss is apportioned in the same way as a gain, so some loss could still be available.
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Since 2015, when non-UK residents became liable to UK CGT, special rules were introduced for PPR relief. The rules can be fiddly; but broadly, PPR relief is only available to a non-resident if they spend at least 90 nights in the house in a tax year.
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If there are periods when you rented out part of the property to a lodger (i.e., you were sharing the house with them), then letting relief up to a maximum of £40,000 is available.
Practical tip
For any property to qualify for PPR relief, you must live in it as a home and make sure you can demonstrate the quality of your occupation. Where you have more than one home, an election is usually beneficial and careful consideration of how to use elections can produce substantial tax savings.
