My VIP Tax Team question of the week: Private Residence Relief – Absences and deemed occupation

Q. My client bought his first home in the UK in 2000 and lived there until 2012, at which point his employer seconded him to an overseas office. While overseas, he lived in rented accommodation and let out his UK property. He returned to the UK in 2023 and moved into a newly purchased property.

His intention is to sell the original property to the current tenants, am I correct that he will not suffer any Capital Gains Tax (CGT) due to a combination of Principal Private Residence (PPR) relief and lettings relief?


A.) This is an area of tax which has a large body of case law, much of which is included in HMRC’s guidance. For simplicity, reference will be made to this HMRC guidance, but it is important to remember that this guidance does not replace the legislation.

All references are to TCGA 92.

PPR relief generally

PPR relief is available to reduce taxable gains arising on the disposal of a residential property (and potentially its grounds) for any periods where the taxpayer occupied the property as their main residence (s.222).

Under certain circumstances, actual occupation can be replaced with deemed occupation, therefore it may be possible for PPR relief to be available for the client here on the ‘old’ property, even during the period they were occupying the overseas rental property or living in the ‘new’ property. This is considered further below.

Where a taxpayer has a single property and occupies it through their entire ownership, full relief from CGT is generally available. However, things become more complex where there are periods not eligible for PPR relief and/or where multiple properties are involved.

Multiple properties
A taxpayer (or a pair of taxpayers who are married or in a civil partnership, see s.222(6)) can only have one PPR at any time and a property does not necessarily have to be owned by a taxpayer to be a PPR. Therefore, when the client left the UK, they had two properties that could potentially be considered their PPR (the rented property, assuming it was let under a tenancy, due to the actual occupation and the old property, subject to there being deemed occupation as below). Obviously, there would be no benefit to the rented property being a PPR in these circumstances, as there is no ownership and therefore cannot be any CGT.

Where two (or more) properties could potentially be a taxpayer’s main residence, notice can be given under s.222(5) to nominate one over the other(s). This does not alter the requirements of s.222 and so nominating a property with no subsequent actual or deemed occupation periods would not create an entitlement to PPR relief. Notice under s.222(5) is therefore a rare occurrence, as the majority of taxpayers will either have a single property or will let out any ‘extras’, meaning these will not qualify as potential PPRs.

HMRC guidance regarding nominating properties for these purposes can be found at CG64485 onwards.

Where notice is needed, it must usually be given within two years of the taxpayer changing the number or combination of properties owned. In the absence of such notice, HMRC will determine which property is the PPR, based on factors such as where the taxpayer is registered to vote, where bank accounts are registered or where children attend school. See CG64545 for HMRC’s guidance where no valid notice has been given.

Notice under s.222(5) could therefore have been given in 2012 (when the client moved into the rented accommodation) and again in 2023 (when they left that property and acquired a new UK property).

As more than two years have passed since the first of these events it is now strictly speaking too late to make the s.222(5) election (assuming one has not already been made of course) for the 2012 changes. However CG64500/s.222(5A) allows late nominations to be considered by HMRC where an individual did not realise they had two potential PPRs, specifically citing the example of a taxpayer who rents a property in conjunction with owning another.

For the election to be beneficial, the old property would need to have been eligible to qualify for PPR relief after 2012. As there had been no actual occupation since the client left in 2012, this would only be the case where there was deemed occupation.

Deemed occupation
There are several instances where a taxpayer can be deemed to occupy a property, despite not physically occupying the property.

A commonly encountered instance is as per s.223(2)(a), which always treats the final 9 months of ownership as qualifying for PPR relief, provided there was a period of actual or deemed occupation at some earlier point.

The client had actual occupation of the old property until 2012, therefore the final 9 months to disposal will count as a period of occupation for PPR purposes, regardless of any other factors.

Less common, though potentially much more useful in the client’s case, are the instances covered in s.223(3). These allow a taxpayer to treat a period of absence as qualifying for PPR relief, either up to a limit or for an unlimited period, depending on the circumstances. Multiple periods from s.223(3) can be combined where needed.

As the second event (i.e. the acquisition of the ‘new’ property) was less than two years ago, a notice given now under s.222(5) would still be in time. It is important to note that a taxpayer cannot benefit from having deemed occupation of the old property at the same time as actual occupation of the new, this should be considered when deciding which property to declare as the PPR from 2023, especially as the final 9 months will qualify regardless (as mentioned above).

The client can potentially have the entire of the 2012 to 2023 period qualify for PPR, provided they meet the conditions in s.223(3)(b) (which they appear to do, having performed employment duties outside the UK) and also meet s.223(3A) and (3B).

Up to three years under s.223(3)(a) (four under s.223(3)(c) if the absence was due to employment duties elsewhere in the UK) from 2023 can then also qualify, again provided s.223(3A) and s.223(3B) are met.

(3A) will seemingly be met in each case, due to the client’s actual occupation up until 2012, but (3B) may be an issue as it requires the taxpayer to reoccupy the property after the period of absence and prior to the sale. This reoccupation must be genuine; the taxpayer cannot merely spend a week at the property and say they have reoccupied it; they would need to make the property their PPR again, likely including notifying official parties (such as the DVLA) of their changed address.

Given the property is intended to be sold to the existing tenants, it is hard to see how s.223(3)(3B) can be met, meaning the old property would only receive PPR relief for the period to 2012, plus the final 9 months. Any s.222(5) elections made in favour of the old property would become invalid, as the property would no longer be eligible to be nominated.

A possible reprieve may apply if the client was unable to reoccupy the old property due to their place of work and/or due to a condition imposed by their employer requiring them to reside elsewhere, as per s.223(3)(3B)(b). This would potentially allow periods under s.223(3)(b) and/or s.223(3)(c) to qualify, though not s.223(3)(a).

HMRC guidance regarding occupation can be found at CG64465, with CG64477 and CG65067 addressing the deemed residence and reoccupation requirements.

Letting relief

Finally, a common misconception is that where a property was let prior to the rule change in April 2020 (which added a requirement for the owner(s) to occupy the property alongside any tenants), that the pre April 2020 period will still qualify for lettings relief. This is sadly not the case; the more generous ‘old’ rules only apply for disposals prior to April 2020, for any disposals after that date the new rules (see s.223B) must be met. As the client has not occupied the property while it was being let out, they do not qualify for lettings relief at any point in their ownership.


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Tax Adviser

Rickie has worked at a variety of practices over the previous 20 years, specialising in personal taxes and VAT, and is able to advise on both direct tax and VAT queries.  He is a member of the ATT and CTA and enjoys running in his free time.  He also regularly writes technical articles for Croner-i and various other websites.

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