Capital Gains Tax and Private Residence Relief

Understanding how PRR works is important for both tax planning and CII exam revision purposes. This article is particularly relevant for students studying for R03 and AF1 and is a subject that often picks up marks in R06 and AF5.

This article is correct as at 7 July 2025.

When you sell your home, any gain in the value of the property is exempt from Capital Gains Tax (CGT) if you had always lived in the property as your primary or main home for the entire duration of ownership. This relief is known as private residence relief (PRR).

However, things get more complicated if the property being sold has not always been lived in as the main residence, in which case only part of the gain may qualify for PRR and tax may be charged on the proportion of the gain that does not qualify. 

What happens if PRR does not apply in full?

In these circumstances, partial relief is available based on the number of months the home was the main residence divided by the total number of months the property was owned.

To work it out we use this formula:

Total gain × period of occupation / total period of ownership

To allow for changes in circumstances, the rules allow certain periods of absence to be treated as if the person were in fact still living in the property.  These are known as periods of deemed occupation and usually need to be preceded by, and followed by, residence.  For example:

• Living in job-related accommodation
• Living elsewhere for up to 3 years if no other residence is exempt
• Up to 4 years of absence if employment meant moving elsewhere in the UK
• Any period spent living overseas for work.
• the final 9 months of ownership (if the property was the main residence at some point) 

Example

Izzy bought a house and owned it for 10 years. She lived in the house as her main residence for 3 years, lived in Australia for 12 months where she lived in her company’s accommodation and then returned to her house for a further 12 months before renting it out to tenants.

The house when it is sold made a gain of £200,000.

The qualifying period for PRR is:

• The first 3 years = 36 months
• 12 months where she worked for her company overseas
• 12 months of further occupation.
• And the final 9 months of ownership.

The total period qualifying for PRR is 69 months.

Total ownership period is 120 months.

The exempt gain is therefore: £200,000 × 69/120 = £115,000.

The remaining gain of £85,000 is chargeable to CGT.

Izzy can use her CGT annual exemption of £3,000 to reduce the gain. 

Summary

Private residence relief remains a key CGT exemption and is frequently tested in CII exams so understanding the calculation and exemptions could pick you up a lot of valuable marks.

Grab the resources you need!

If you’re studying for your CII R03 exam, practising exam-style questions is one of the best ways to check your understanding and build confidence. Our R03 mock paper taster gives you a feel for the style and level of our revision resources before you buy. Click the link to download your free R03 mock paper taster now.

Alternatively, you can try the taster for AF1 if you’re studying for that exam.