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TAX TIP TUESDAY: The “Occupation” Rule to Calculate Principal Private Residence Relief

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 

If you might be liable to Capital Gains Tax (CGT) when it comes to selling your property, make sure you have considered Principal Private Residence Relief (PPRR).

The simplest way to be free from CGT is for the property that you are selling to be your sole residence either during its entire ownership or if you move out during the last 18 months of possession. However, it can also be your main residence if you own more than one property (for example, as opposed to a holiday home). There are also special considerations if moving into residential care, or are disabled.

If you do own more than one property, HMRC might require you to prove occupation at the dwelling that you have chosen to nominate as your main residence. In this case, utility bills might be sufficient.

But what if you are unable to live in your property for a period of time? There are some exceptions.

Sometimes it is the case that you can’t live in the property for the full duration of your ownership, but perhaps have a period of non-occupation in the middle. In these circumstances, you still might be eligible for PPRR under a ‘deemed occupation’ rule. To be applicable, the owner cannot have any other property that might be eligible for private residence relief.

‘Deemed occupation’ asserts that a property is the main residence of its owner for the period before and after any absence. Sometimes this is known as an occupation ‘sandwich’.

Examples of when ‘deemed occupation’ might be valid include:

  • A period of absence of up to three years
  • Unlimited time of being employed abroad (this could be the owner or their spouse/civil partner)
  • Up to four years of being employed or self-employed elsewhere (this could be the owner or spouse/civil partner).

To be applicable, one or more of the above conditions needs to be met during the ownership, in addition to the owner living in the property before and after the absence.

If for any reason an owner is unable to move back into the dwelling after an absence, it is likely that Capital Gains Tax will apply.

There are exceptions to this, such as where an employment agreement might require the owner to be working elsewhere.

On a positive note, there are not rules around letting out your property during your period of absence. However, if you do move out of your home and choose to turn it into a ‘buy to let’ opportunity instead of selling, when you come to sell, a portion of the capital gain will be eligible for tax.

Specialist tax advice when selling your property.

Tax planning is often complex. Working with an independent financial adviser will help you to identify the most tax efficient ways of managing your property sale. Speak to the Dental & Medical Financial Services team for assistance with your property tax planning.

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