Transfer of Private Residence – Private Residence Relief

Transfer of Private Residence – Private Residence Relief

Finance Act 2020 introduced changes under paragraph 24 regarding the period of ownership of main residences.

The changes apply to disposals in or after 6 April 2020.

The matter under consideration is the transfer of an interest in the only or main residence between spouses or civil partners and redefines the period of occupation for the purposes of private residence relief (PPR).

What are the existing rules?

Prior to the amendment and for property transfers before 6 April 2020 the legislation only allowed the occupation history of the transferring spouse to be inherited by the donee if the transfer was done whilst both were actually living in the property as their PPR at the time of transfer.

This was because the law was written in the present tense. It had been known for considerable amounts of relief to be lost because a transfer was made at the wrong time usually when the property was not occupied and just before sale.

Whilst these transfers took place on a No Gain/No Loss basis, and the gain could be shared between them to utilise each individual’s annual allowance, the benefit of the PPR exemption and the Lettings Relief exemption was lost on the share eventually disposed of by the recipient spouse.

The amendment serves to remove this restriction and gives a new planning opportunity.

New Rules

Following the change in Paragraph 24, now on such a transfer, the donee will inherit the donor’s period of occupation as well as their period of ownership for the calculation of the relief.

The transfer may be at any time in the ownership of the donor for the relief to be available to the donee. This allows them to claim the PPR exemption for their spouse’s occupation even if the recipient spouse has never occupied the property.

Obviously, as Lettings Relief has been abolished form 6 April 2020 in most cases, the relief is only partial however, this should provide a tax saving in a lot of cases.


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