Sarah Bradford explains how certain periods of absence may be treated as periods of residence for the purposes of capital gains tax principal private residence relief.
Principal private residence (PPR) relief is a well-known capital gains tax (CGT) relief that prevents a tax charge from arising when a gain is made on the disposal which has been the owner’s only or main residence throughout their period of ownership.
If the property has not been occupied as the individual’s only or main residence throughout, PPR relief applies to the period for which it was occupied as such, plus the final nine months of ownership (this is increased to 36 months when the owner goes into care).
Less well-known is that certain periods of absence are treated as periods of residence for the purposes of the relief. This article looks at what counts as a qualifying absence.
Away from home
An absence is defined in the tax legislation as a period during which the dwelling house was not occupied by the individual as a residence.
A period of up to three years (or two or more periods of absence which together do not exceed three years) may be treated as a period of residence. However, to qualify for this treatment, there must be a period before the period of absence when the property was the individual’s only or main residence and a period after the period of absence when the property was the individual’s only or main residence.
Example 1: Comings and goings
Anna purchased a cottage on 10 June 2012. She lived in it until 31 March 2015. She then went travelling for just over four years, returning on 10 July 2019. Following her return, she lived in the cottage again until 17 July 2023, when the cottage was sold.
Main residence relief is available as follows:
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10 June 2012 to 31 March 2015: occupied as an only or main residence.
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1 April 2015 to 31 March 2018: qualifying three-year absence treated as a period of residence.
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1 April 2018 to 9 July 2018: no relief.
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10 July 2019 to 17 July 2023: occupied as an only or main residence.
The period of absence from 1 April 2018 to 9 July 2019 does not benefit from relief as she has already used up the three-year period permitted by the legislation.
Duties performed outside the UK
Where an individual is required to work abroad, any period for which all the duties of the employment are performed abroad is treated as a period of residence for the purposes of PPR relief.
However, for the absence to qualify, the property must have previously been occupied as an only or main residence. Further, following the individual’s return to the UK, the property must be occupied again as an only or main residence unless the individual is prevented from doing so because of the location of his or her place of work, or because of a condition imposed by the terms of the individual’s employment requiring the individual to reside elsewhere to secure the effective performance of the duties of the employment.
There is no limit to the length of the period that can be treated as a period of residence where the duties of the employment are performed outside the UK.
A period of absence is also treated as a period of residence by a person who accompanies their spouse or civil partner while they are working abroad, as long as their spouse or civil partner meets the conditions set out above.
Any return visits to the UK for holidays are ignored. However, periods when duties are performed in the UK, even if these are incidental to the duties performed abroad, do not count as periods of residence under this test, although they may qualify under another test (for example, the three-year absence for any reason test outlined above).
Example 2: Working in France
James purchased a flat on 12 October 2016. He lived in the flat until 31 August 2017. He was sent by his employer to work in Paris with effect from 1 September 2017 for five years. He returned to the flat on 1 September 2022, living in it until the flat was sold on 30 June 2023.
The entire period is treated as a period of residence and private residence relief is available in full.
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12 October 2016 to 31 August 2017: occupied as an only or main residence.
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1 September 2017 to 31 August 2022: qualifying absence treated as a period of residence – duties of employment performed wholly outside the UK.
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1 September 2022 to 30 June 2023: occupied as an only or main residence.
Working elsewhere
A period of absence not exceeding four years (or two or more periods not exceeding four years in total) in which an individual is prevented from living in the property in consequence of the location of their place of work, or because of conditions imposed by their employer requiring the individual to live elsewhere where this is reasonable to secure the effective performance of the duties, is treated as a period of residence.
The individual must have previously lived in the property as an only or main residence. After the period of absence, the individual must either return to the property or be prevented from doing so because of the location of their place of work or conditions imposed by their employer requiring the individual to work elsewhere to perform the duties of the employment effectively.
Example 3: Location hopping
Molly purchased a house in Kent on 1 November 2014. She lived in the house until 30 April 2018. She was sent to work in York until 31 December 2019. Her employer then sent her to work in Durham on a long-term contract. She sold the house in Kent on 31 July 2023.
Main residence relief is available as follows:
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1 November 2014 to 30 April 2018: occupied as an only or main residence.
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1 May 2018 to 30 April 2022: qualifying absence treated as a period of residence – four-year absence due to requirements of employment.
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1 May 2022 to 31 October 2022: no relief.
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1 November 2022 to 31 July 2023: final period exemption – last nine months of ownership.
Molly is prevented from returning to the property as she is required to work in Durham. The first four years where she is required to work elsewhere do not qualify. She also benefits from the final period exemption for the last nine months of her ownership of the house, as it has been occupied previously by her as her only or main residence. The remaining period from 1 May 2022 to 31 October 2022 does not qualify as a residence. She cannot take advantage of the ‘three-year for any reason test’ as she does not live in the property as a main residence after that absence.
Absence due to a spouse or civil partner’s employment
A period not exceeding four years (or two or more periods not exceeding four years in total) when a person is absent from a property because they lived with a spouse or civil partner who was required to work elsewhere and who meets the conditions outlined above for their period of absence to be treated as a period of residence, is treated as a period of residence.
Example 4: Staying together
James and Lucy are married. They purchased a house in Bristol in December 2017. They lived in it until 31 January 2019. Lucy was then sent by her employer to work in Edinburgh by her employer for three years. Her husband accompanied her. Lucy and James returned to their Bristol house on 1 February 2022 and lived in it until they sold it on 31 May 2023.
James is treated as living in the property throughout. The period of absence from 1 February 2019 until 31 January 2022 qualifies as Lucy meets the conditions for the absence to be treated as a period of absence during which she was required to work elsewhere.
Other properties
The position is more complicated if an individual has another residence. While a qualifying absence is treated as a period of residence, it does not treat the property as if it were the individual’s only or main residence during the absent period.
Consequently, if the individual has other residences, they will need to consider which property is best nominated as their main residence.
Practical tip
When claiming PPR relief, check whether any periods of absence are eligible to be treated as periods of residence.
