Principal Private Residence Relief (PPR) is one of the most valuable and claimed reliefs against a charge to Capital Gains Tax on the disposal of a dwelling house. To benefit from the relief, the dwelling house must be the taxpayer’s only or main residence throughout the period of ownership, excepting for any or all of the last 18 months of ownership (36 months should the owner or their spouse/civil partner live in residential care as a long-term resident, or is a disabled person, at the time of the disposal). Note that this term is to be reduced to nine months as from 6 April 2020 because a longer period of deemed occupation allows PPR relief to accrue on two properties simultaneously.
However, there may be times when the owner is prevented from living in his or her main residence for reasons that are not the owners by choice. In such instances, it would be unfair for relief not to be granted relief for that period of absence. A ‘deemed occupation’ claim is only possible where the taxpayer is absent from the property and importantly, has no other residence eligible for PPR.
Absences can be cumulative so long as one or more of these three conditions applies:
- any period of absence – maximum of three years, or
- overseas employment (not self-employment) of the owner or spouse/civil partner – unlimited period, or
- employment elsewhere (employed or self-employed) of the owner or spouse/civil partner – maximum of four years.
For a claim under any or all of the conditions the property must have been the main residence both before and after the period of absence in what is termed an actual occupation/deemed occupation/actual occupation 'sandwich'. Unfortunately it is often the case that for unavoidable reasons, the individual does not move back into the property. In such circumstances, even if the requirements of the above conditions have been met, the period of absence will not count and a possibly substantial proportion of the gain will be taxable. It is irrelevant as to whether the property remains empty or is let during the periods of absence.
A potential exception to the 'sandwich' rule arises where the property owner is unable to reoccupy the main residence as the terms of his/her employment requires him/her to work elsewhere. In this situation, the period of absence can still be treated as a period of deemed occupation.