PPR relief: Give me some space!

By | 30 November 2021

Relief on the disposal of a private residence (or ‘principal private residence (PPR) relief, as it is commonly known) is sufficient to shelter gains on the disposal of an individual’s only or main residence from capital gains tax in most instances, where the qualifying conditions are satisfied.

Is it permitted?

One of the limitations in PPR relief applies to the size of the garden and grounds of the residence. Relief is available, within a ‘permitted area’, if the garden and grounds are occupied for the individual’s occupation and enjoyment with that residence.

As a general rule, the ‘permitted area’ means 0.5 hectare (i.e., 1.235 acres). However, a larger area may be claimed as the permitted area if it is required for the reasonable enjoyment of the dwelling.

Unfortunately, there is no definition of ‘required’ or ‘reasonable enjoyment’ in the PPR relief rules. This has resulted in disputes between taxpayers and HM Revenue and Customs (HMRC) before the courts and tribunals.

All or part?

For example, in Phillips v Revenue and Customs [2020] UKFTT 381 (TC), a married couple purchased a property in 1997 for £450,000. The entire property and grounds covered 0.94 of a hectare. The taxpayers decided to sell their property in June 2014 and claimed that the entire gain qualified for PPR relief. However, HMRC subsequently found out about the disposal, and in October 2018 issued discovery assessments on the basis that the property was not of a size and character that required gardens/grounds of more than the normal statutory maximum of 0.5 of a hectare.

The First-tier Tribunal stated it was important to bear in mind that consideration of the area of land required for the reasonable enjoyment of a dwelling-house involved “an appreciation of the requirements of occupiers of residential property, and a knowledge of the residential property market.” The tribunal accepted evidence from the taxpayers’ expert witness and concluded that the whole 0.94 of a hectare comprising the garden and grounds of the taxpayers’ property was required for the reasonable enjoyment of the dwelling and so fell within the permitted area qualifying for PPR relief.

VOA approach

Helpfully, the Valuation Office Agency (VOA) sets out a five-step approach to determining the permitted area and the amount of PPR relief in its Capital Gains manual (tinyurl.com/VOA-CGT-S8, at para 8.3), broadly as follows:

  1. Determine which building(s) qualify for relief.
  2. Determine the extent of the ‘garden or grounds’ (i.e. which land occupied with the dwelling can be described as garden or grounds).
  3. Determine the size of the permitted area (i.e. if the ‘garden or grounds’ are in excess of 0.5 of a hectare how much of that land is ‘required’ for the reasonable enjoyment of the dwelling house as a residence).
  4. Determine the location of the permitted area (i.e. which part of the garden or grounds would be the most suitable for occupation and enjoyment with the residence).
  5. Apportion the disposal proceeds and acquisition cost between the part of the property qualifying for relief and the remainder.

Practical points

Keep detailed records to support any claim for the ‘permitted area’. In Phillips, the extent of supporting evidence provided by the taxpayers’ expert witness appears to have been a key factor in the tribunals’ decision in their favour.

The above article was first published by Property Tax Insider (April 2021) (www.taxinsider.co.uk).