PPR or not to PPR

PPR or not to PPR

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A client owns their own home and has lived in it for years as their PPR.  They decide to move into another property, which they rent from a landlord.  Thereafter, they use the old house as an office on a regular daily basis and as a management centre for a partnership (they used to do the latter but the office use will be new, as this was dealt with via the new rental property in the past, and will revert to the old house instead going forward) - both not wholly or exclusively.

Ignoring any VAT or income tax issues concerning apportionments etc. for mixed use of properties, if they are now living in the rented property as a PPR under a tenancy agreement (not a licence), it appears that they can still claim it is their PPR.  It's arguable whether they could claim the old house could still be a PPR as they are using it for business use, but to be fair, the business element wouldn't take up an awful lot of the actual space in the old property, so they probably could still live in it, but it is costing a fortune to maintain hence the desire to move out.

The question is, if they qualify for PPR on the rental property they are living in, what is the benefit to them of this?  They don't own the house, so if it were sold, like other rental properties, the seller would not be able to claim any PPR relief because his residential tenants lived there, and in this case, the tenants wouldn't be in a position to take ownership of the property at some point, so couldn't then claim that PPR was relevant in the earlier period while they rented it.

Replies (15)

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By Mouse007
06th Nov 2013 16:40

You haven't

Got the faintest idea about PPR have you?

 

Your PPR is your main place of abode, where you live "most of the time". You can only have one at a time; fact.

It is relevant to capital gains tax, something totally irrelevant to a tenant.

 

Tis truely a day for scary questions.

 

 

 

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By Kirkers
06th Nov 2013 16:41

Please forgive me if I'm wrong (as I'm only studying!) but I thought PPR was only relevant for capital gains purposes? Surely you can't get PPR on a property you don't own?

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By Mouse007
06th Nov 2013 16:52

There you go

even students know this

 

Yes Kirkers, correct, have a "thanks"

 

{goes off looking for a gold star}

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By Steve Kesby
06th Nov 2013 16:55

Nomination

@ Mouse and Kirkers.

Actually, PPR is a misnomer. It's only or main residence relief.

Where a person has more than one residence (ie a place at which they spend some of their time occupying as a residence) they can then nominate (under S. 222(5) TCGA 1992) which of them is to be treated as the main residence (even if, in fact, it is the residence that they spend the least time at). A nomination can be made between a rented and an owned property.

So Ian (who I think does know what he's talking about) is asking, given that the rented property being the main residence has no benefit (because the occupier will have no CGT on it) is it worthwhile (and is it possible) nominating.

It's clearly worthwhile, and whether it's possible is a question of fact. Is it as a matter of fact being occupied as a residence at any time now? If it is, then nomination is possible.

PPR only applies though to the parts that are used as a residence or unused. If the part used for business isn't used for anything else, then that's exclusive business use, even if it's not all the time.

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By Kirkers
06th Nov 2013 16:56

Steve, sorry if I've got this wrong - does that mean PPR is possible on a property you reside in (whether it's your main residence or not) even if you don't own the property?

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By Steve Kesby
06th Nov 2013 17:03

You can't claim PPR...

... on a rented property, but if you have a rented property (that you mainly occupy as your residence) and an owned property (that you also occupy as a residence, but less so), then by default the owned property won't qualify for PPR.

The owner could nominate though (within two years of having the two residences) for the owned property to be the PPR for CGT purposes to their advantage. That's essentially the nature of Ian's question.

It's what MPs do!

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By Kirkers
06th Nov 2013 17:07

I see. Do they not have to live in the property though? Not necessarily the majority of the time - but surely they must live in it a little bit not just use it as an office space? I know the OP said its possible to live there, but is that different to actually residing there sometimes?

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By Steve Kesby
06th Nov 2013 17:11

Agreed

It both must actually be occupied as residences, as a matter of fact, for nomination to be possible.

That is where the OP was a little vague, hence my questioning it.

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Jennifer Adams
By Jennifer Adams
06th Nov 2013 20:14

Here is an article all about PPR claims...

PPR - What you need to know

https://www.accountingweb.co.uk/article/principal-private-residence-reli...

>>>it goes through exactly what can be claimed and what HMRC look for in a PPR claim.

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Northumberland flag
By MJShone
07th Nov 2013 09:28

I agree with Steve

It's not as scary a question as others think. (Mouse - no cartoon???)

Many taxpayers don't realise that if they (say) rent a home in town and own another  in the country, the rented property could be their main residence when it comes to claiming PPR on the property they own. If you work in town, the kids go to school there, friends and family (if asked) would say you live there and you only go to the house in the country at weekends, then the rented property will be your PPR for CGT purposes. That, of course, is no good to you whatsoever, because you'll never make a capital gain on the rented property. The problem it creates is that you don't get PPR on the property you own. However, as long as the property you own is one of your residences (so not, for example, let to someone else or used by you only as an office) you can elect for it to be your PPR.  That election strictly needs to be made within 2 years of acquiring a new combination of residences, but ESC D21 http://www.hmrc.gov.uk/manuals/cgmanual/CG64500.htm is often very useful in the situation where someone has missed the two year deadline because they haven't realised they needed to make an election (because they assumed that a rented property couldn't be your PPR, for example).   

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By King_Maker
07th Nov 2013 11:06

If the owned property is no longer one of their residences, it can no longer qualify for PPR relief (except for the last 36 months of ownership). Lettings Relief may be available.

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By tonycourt
07th Nov 2013 11:58

Rental agreements and PPR

I agree with Steve and others although I might phrase my response slightly differently. However the point that was causing the OP trouble is why a rented property is capable of being a residence for PPR (excuse the acronym Steve). I can shed some light on that.

Until around 30 years ago HMRC, or the good old IR as they were then, did not consider that a rented residence was one capable of qualifying for PPR. Then their legal bods changed their minds – the grounds for this change of heart was the wording in s222(1) and (7)

(1)

“This section applies to a gain accruing to an individual so far as attributable to the disposal of, or of an interest in....”

(7)

“In this section and sections 223 to 226, “the period of ownership” where the individual has had different interests at different times shall be taken to begin from the first acquisition taken into account in arriving at the expenditure which under Chapter III of Part II is allowable as a deduction in the computation of the gain....”

If I remember the press release/internal memo rightly the gist of it was that a rental agreement (but not a license – see below) has a value which while not usually assignable theoretically could be assigned. It is therefore an “interest in” (section 1) the residence and is “expenditure” under chapter lll of Part ll.

So, as the OP said, there doesn’t seem to be any value or relevance of a PPR for a rented accommodation, but I’m afraid that’s the way the cookie crumbles.

However, as FaultyBasil, pointed out in a recent post, the now, generally accepted interpretation can work to your advantage, i.e. you can start a new two year election window by renting accommodation. Of course HMRC might challenge whether a rental property was a residence at all for the purpose of s222, i.e because it was only a stop gap home, but it’s a potentially useful tactic.

License v rental agreement

A license only provides use of property not like a rental agreement which assigns temporary rights over the property. It’s like comparing lending your lawnmower to the next door neighbour and temporarily giving it to them so they have absolute (subject to conditions) right and control over it.

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By King_Maker
07th Nov 2013 14:59

@Basil :

Yes, Lettings Relief only for residential accommodation - overlooked the OP's info.

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By ianthetaxman
07th Nov 2013 18:32

Thanks for the comments...

My main purpose in making the OP was to clarify the usefulness or otherwise of the PPR rules in the particular situation.  I didn't want to cloud the issue with additional information but my concern was that I might be missing something in that there was no obvious benefit to a claim being made.

It seems that this may or may not be the case, as highlighted by Steve and Tony, but I'm grateful for (nearly) all of the feedback!

I am aware of the CGT and PPR rules, but special thanks too to Steve for his support!! :)       

 

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By Gez60
27th Nov 2015 14:16

PPR

Hi Does anyone know If you retain PPR on a property purchased with mixed use. Property £1.45 million benefits from £30,000 saving in stamp duty as its mixed use. Does it lose its PPR for CGT purposes?

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