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HMRC internal manual

Capital Gains Manual

Private residence relief: the importance of identifying the entity of the dwelling house

The entity of the dwelling house must be identified before you are able to identify its garden and grounds (CG64350+), and from there determine the permitted area (CG64800+).

It is extremely important to identify the entity of the dwelling house as a preliminary step for two main reasons.

The first is that the permitted area is defined in TCGA92/S222 (3) in terms of ‘the size and character of the dwelling house’. So if you conclude that the entity of the dwelling house includes one or more ancillary buildings, the resultant ‘size and character’ of the dwelling house will be a relevant factor in the consideration of the extent and location of the permitted area.

The second reason is that the permitted area is defined in TCGA92/S222 (2) as an area inclusive of the site of the dwelling house. The District Valuer cannot determine the permitted area as a series of islands of land around particular buildings; it must be one piece of land. So, if you conclude that a building which is a considerable distance from the main house forms part of the entity of the dwelling house, all the land between the main house and the distant building would be included in the permitted area.

Buildings are legally part of the land on which they stand and TCGA92/288(1) applies this to Capital Gains Tax. This means that private residence relief may be available on the disposal of a building which is owned together with the main dwelling house if it is

  • part of the dwelling house, or
  • within the permitted area of the garden or grounds of the dwelling house.

So, any additional buildings that lie within the permitted area that do not form part of the dwelling house but are used for residential purposes, may also qualify for private residence relief on a disposal.