The Principal Private Residence exemption is a popular area in the tax exams, and it makes the taxpayer’s main residence including half a hectare of land tax-free from capital gains tax as long as it is occupied by the taxpayer during the period of ownership.
The important aspect to remember is you can claim ‘deemed occupation’ even though you are absent from the property. These include 36 months for any reason, 4 years working elsewhere in the UK, and any period working overseas. The important condition here is the period of absence must be preceded and followed by actual occupation.
In the June 2021 Advanced Tax exam, it was not possible to claim 36 months for any reason as there was no period of occupation before this period. However, it was possible to claim any period working overseas as the property was occupied before and after the period while the client was working overseas.
The final deemed occupation that is always available is the last 9 months of ownership (previously 18 months).
The other relief available is letting relief if the main residence is let out which makes up to £40,000 of the gain tax free. However, it is only available if the property is occupied by the client at the same time. In the June 2021 Advanced Tax exam, the client occupied 75% of the property and let out the basement. The basement was not eligible for the PPR exemption but was eligible for letting relief.
If you are doing Advanced Tax in September 2021 the exam is 6 weeks away. I recommend you get a copy of Advanced Tax Condensed to help you.