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HMRC internal manual

Capital Gains Manual

Private residence relief: only or main residence: an interest in a dwelling house is a requirement

An individual must have an interest in a dwelling house used as his residence for it to be a residence within the meaning of TCGA92/S222. This is because relief is available on the disposal of, or of an interest in a dwelling house or part of a dwelling house. References to a residence in Section 222 should be interpreted on this basis. Therefore, when considering which of an individual’s residences is their main residence for the purpose of private residence relief, it is only necessary to consider those in which that individual has an interest.

An interest in a dwelling house means a legal or equitable interest. It includes all possible forms of ownership from owning the freehold to being the co-owner of a minimal tenancy. In most cases, where a residence is rented a tenancy exists, and such residences therefore remain within Section 222.

The only circumstance in which an individual can reside in a dwelling house in which he or she has no legal or equitable interest is where the property is occupied under licence. A licence is a permission to reside in a property which may be contractual or gratuitous. For instance, staying in a hotel or in lodgings are examples of residence under contractual licence. And staying with family or friends is an example of residence under gratuitous licence.

An individual’s only or main residence may be in a home in which they have no interest. Where it is the case that their main home is occupied under licence but they also reside in another dwelling house in which they have an interest, the residence in which they have an interest will be the only or main residence within S222 because the word residence within Section 222 only refers to residences in which the individual owns an interest.

The question of whether or not a dwelling house is a residence within the meaning of Section 222 may become important where an individual has one or more other residences. This is because where there is more than one residence the individual is able to nominate, within set time limits, which is to be treated as the main residence, see CG64485+. By doing this the individual can ensure that the residence which is treated as their main residence is the one on which a gain is more likely to accrue. In certain circumstances the time limit for making such a nomination may be extended by virtue of ESC D21, see CG64500.