If a property was at some point your PPR then the last 18 months are exempt from tax. Where the disposal took place prior to 6 April 2014, the last 36 months of ownership were exempt. The last 36 months of ownership remain exempt for post April-2014 disposals where the owner or their spouse or civil partner is disabled, or one of the couple have moved into a residential care home.
This means that if you have a second property that you now live in, then you are still entitled to PPR for the last 18 months on the other property.
Example:
Tom sells a property in 2015 which he has been renting out for the last eight years. He actually owned it for ten years as he lived in it for the first two years. He is a higher rate taxpayer.
When the property is sold he realises a profit of £100,000 before PPR relief.
His actual PPR relief would be 2/10ths of the gain (i.e. the first two years he lived in it (£20,000)), but by using the 18-month rule a further 3/20ths of the gain (£15,000) drops out of charge, leaving him with a gain of £65,000 instead of £80,000.
The exemption in respect of the final 18 months saves Tom £4,200 in capital gains tax (£15,000 @ 28%).
In addition, Tom qualifies for the lettings exemption, further reducing his gain.
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