I am a new property investor, and I am looking at a property where the owner is willing to give me a five-year purchase lease option (PLO) for £550,000. Whilst this PLO is great for me, I do not know if giving me this PLO will disadvantage her from a tax perspective when we complete in five years. This is her primary residence and from what I understand, private residence relief (PRR) only applies for nine months after she moves out. After that, I imagine she could be charged capital gains tax (CGT) on the £200,000 of gain she has accumulated. Can this tax liability be managed to minimise the impact on her?  

Arthur Weller replies:  

From what you have written, I assume that you have an option to purchase the property by 2027 at today’s market value of £550,000 but that you expect the property to have a market value of £750,000 by the time you purchase. The seller is planning to move out so that you can rent out the property to someone else. If so, you are correct that the seller is at a disadvantage because they will only get private residence relief from CGT until the date they move out, plus a further nine months final period exemption. The remainder will be subject to CGT. However, you must bear in mind that you have no guarantee that the property will increase in value to £750,000.