When you sell a property, any increase from the original acquisition cost and improvements made could result in a capital gain subject to taxation. However, the Government has legislated that Principal Private Residence relief (PPR) can be available (to reduce the capital gain subject to tax), which arises on disposal of:
- A dwelling house which has been the individual’s main residence; and
- Land held for his own occupation and enjoyment with that residence as its garden or grounds up to the permitted area.
But, what does this mean in practice?
The permitted area is half a hectare, which simply means that if there are gardens and grounds up to this specified threshold that has been used with a residence that qualifies for PPR relief, then this relief will also be available on that area.
However, it is possible that a grander property may have larger gardens and grounds, and in this situation, provided it can be shown that the larger area is required for the “reasonable enjoyment” of the residence, (when taking into account the size and character of that property), then PPR relief could still be available on the larger area in excess of half a hectare.
Several cases have considered what can be included in a claim for PPR relief, in particulars where substantial properties are sold, such as manor houses with additional lodges and ancillary buildings. If the additional buildings are of a character appropriate to the entire property, then PPR relief may be available on the entire site. In the case of Batey v Wakefield, the taxpayer was able to claim PPR relief on a bungalow he had built on his land, but which was separated from the main house by a tennis court and a hedge, along with its own access road. Since the taxpayer was able to demonstrate that the bungalow was built for the purposes of the main house, as the caretaker lived there to provide services and security for the main house, the claim was permitted.
Applying this to a more common situation, if there are garages or greenhouses that form part of the site occupied by a dwelling, these buildings will likely qualify for relief.
In a separate court case, leases were held on four separate flats in Kensington, which were occupied by the taxpayer and his family, and at times, guests of the family. Whilst the gain on one flat sold was originally treated as qualifying for relief, the High Court found that the other flats were no more part of a dwelling house used as the main residence than a house in a neighbouring village would have been.
This highlights the important concept of the “curtilage” of the property. Buildings which are within the curtilage of the main house will normally be included in a conveyance of the property without being specifically mentioned, and will therefore usually qualify for relief. However, there is a difference between the curtilage of a property and the curtilage of an estate, and it is important to look at every situation, establishing what relief is due on the facts of each particular residence, and the buildings or land involved.
In light of the above, it is also important to ensure that appropriate evidence is obtained for the use of the property, while it is still being occupied as a residence. This will help support a claim for PPR relief in the event that HMRC should query any claim.
If you are considering the sale of your property, please do get in touch to discuss the position, and establish if there are any planning opportunities to maximise the amount of relief available.