PPR relief: Demolished and rebuilt dwellings

mortgage interest

PPR relief: Demolished and rebuilt dwellings

Principal private residence (PPR) relief (broadly) applies to gains accruing to individuals on the disposal of (or of an interest in) all or part of a dwelling house that has (or has at any time during their period of ownership) been their only or main residence.
No part of a gain to which PPR relief applies is a chargeable gain if the dwelling house has been the individual’s only or main residence:

  • Throughout their period of ownership, or
  • Throughout their period of ownership, except for all or any part of the last nine months.

Period of ownership

Suppose someone buys a dwelling house. Has it demolished and builds a new dwelling house on the same land as the old one. For PPR relief purposes, does the ‘period of ownership’ relate to

  • the land on which both houses were
    built, or
  •  the period during which the new house existed.

If the period of ownership relates to the land, there will be a period between the old house being demolished and the new house being built when there was no residence as such (and therefore no occupation as a residence), resulting in a potential restriction on the amount of PPR relief available on a future disposal. If the period of ownership relates to the newly built dwelling, then if it was occupied as the individual’s only or main residence until its eventual disposal. PPR relief shouldn’t be restricted at all. A recent case at the Upper Tax Tribunal has confirmed that it is occupation of the newly built dwelling that is relevant and that there should be no apportionment of relief to restrict it for the period when no dwelling existed on the land. This is the case, even if the land was increasing in value while the new property was being built! The decision ties in with a similar case at the Court of Appeal in 2019. Where someone bought a property ‘off plan’ and occupied it when it was finally completed over three years later. After living in it for two years, the property was then sold for a considerable profit. The gain he made on sale was held to be fully exempt under PPR relief. Even though he could have sold the property before the dwelling was completed. If he had done so, no PPR relief would have applied to any gain. PPR relief can be a lot more complicated than people think. For example:

  • You need to show that you have occupied the property with the intention of living there as a ‘home’ with a degree of permanence; and
  •  There are special ‘deemed occupation’ rules that mean you can be treated as having been living in a property even when you weren’t!

Please contact us if you wish to discuss any aspects of PPR relief. However, note that it will never be available on a property that you have never occupied as a home.

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