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HMRC internal manual

Capital Gains Manual

Private residence relief: disposals on or after 10 December 2003

Section 226A (introduced by FA 2004) denies or restricts the relief if

  • the owner acquired the dwelling house on or after 10 December 2003, and
  • the acquisition cost of the dwelling house, is reduced by gift hold-over relief under TCGA92/S260 (see CG67030+).

Relief under section 260 most commonly involves disposals by or to the trustees of certain types of settlement (see CG67041). The claim to relief has to be made by both the individual and the trustees if the transfer is from the trust to the individual. Only the individual need make the claim if the individual transfers the property to the trust.

It is possible that a claim for gift hold-over relief in respect of an earlier disposal may not be made until after the gain on the later disposal has been computed and private residence relief claimed. If such a hold-over claim is received, and not withdrawn, the gain arising on the later disposal will be recalculated taking into account both the held-over gain and the denial of private residence relief by TCGA92/S226A. So a chargeable gain may arise for the tax year in which the later disposal took place.

The FA 2004 changes that introduced TCGA92/S226A also included transitional provisions (FA 2004/SCH 2/PARA8) for certain disposals made on or after 10 December 2003. It applies if the acquisition cost of the dwelling house is reduced by gift hold-over relief under TCGA92/S260 in relation to an earlier disposal (or series of earlier disposals) the latest of which took place before 10 December 2003. In that case only the period of ownership before 10 December 2003 qualifies for private residence relief. Therefore the gain must be time-apportioned in order to compute the gain which will remain in charge (see the example in CG64935).

If private residence relief is restricted because of the rules introduced in FA 2004, relief is not available for the final 36 months of ownership in full but only for that part of the final 36 months falling before 10 December 2003. Any disposals after 10 December 2006 will therefore not be entitled to relief for the final 36 months. (See the example in CG64936).

Private residence relief is not restricted on the disposal of a house by an individual if they acquired the house from trustees and the trustees claimed relief under TCGA92/S225 TCGA and not TCGA92/S260 See CG65400+.