Update March 2024

The Budget on 6 March announced a welcome reduction in the capital gains tax for higher rate tax payers for gains on residential property from 28% to 24%. This reduction will come into force on 6 April 2024. One of the key reliefs available against capital gains tax on residential property is Principal Private Residence Relief (PPR) which can be available on the sale of your ‘principal’ home. In summary, PPR can offer 100 per cent tax relief on the capital gain made on a home since it was bought or inherited, on the condition that it has been the only or main residence throughout your period of ownership, and you have not lived elsewhere (for example let it out) or used it for business purposes.

However, there is a limit of 0.5 hectares (1.25 acres) on the size of garden or grounds that can be eligible for the relief. This means that owners of country houses whose grounds often exceed this will be liable to pay CGT on any excess land, unless it can be shown that those grounds are 'required for the reasonable enjoyment of the property'.

HMRC will usually challenge an application for the inclusion of a larger area, but it is possible through the use of a specialist valuer and the provision of supporting evidence to succeed in proving the inclusion of a larger area as well as outbuildings and ancillary accommodation if required for the reasonable enjoyment of the property.

As part of this exercise it is necessary to determine by how much the value of the property which falls outside the 'Permitted Area' has increased since 31 March 1982 or from the date of acquisition if bought or inherited after this date, which is often not straightforward, and again requires specialist valuation knowledge.

The deadline for reporting the sale of a home to HMRC and paying any CGT owed is now 60 days from completion and failure to do so may incur late filing penalties. If you are in the process of selling your home and the grounds exceed 0.5 hectares it is sensible to engage a specialist valuer early on in the sales process in order that upon completion the non-relievable capital gain can be determined and tax paid in time.

The Chancellor has just ordered a review of CGT and the reliefs available, but for the time being PPR remains a valuable CGT relief.

Further information

Contact Savills Rural