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Private Residence Relief: Appealing A CGT Bill On The Sale Of Your Home

Sold a home and HMRC has reduced or refused private residence relief? A plain-English guide to how PRR really works, the five flashpoints HMRC uses to restrict it, what changed in April 2020, and how to appeal an assessment or closure notice.

Liam Williams

Liam Williams

— 16 min read
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You sold a property, assumed it was tax-free because it was your home, and got on with your life. Then an HMRC letter arrived saying capital gains tax is due after all—because the relief you counted on has been reduced or refused.

That letter might be a correction or enquiry into your 60-day property return, a closure notice ending an enquiry into your tax return, a discovery assessment for a year you thought was long closed, or a plain amendment to your self-assessment. Whatever its label, the message is the same: HMRC says private residence relief does not cover all of your gain.

Take a breath. Private residence relief—PRR, often called principal private residence relief—is genuinely generous, and most people who sell their actual home keep it in full. But it is a relief you have to prove, and HMRC has several specific levers to restrict it. This article explains how the relief works, the five points where HMRC commonly cuts it back, what changed in April 2020 (the biggest blind spot for sellers), and how to challenge the bill.

How Private Residence Relief Actually Works

The relief lives in sections 222 to 226A of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). HMRC's own summary of the scheme is at CG64200 in its Capital Gains Manual.

The core idea is simple. Section 222 gives relief on a gain from disposing of a dwelling-house (or part of one) that "is, or has at any time in his period of ownership been, his only or main residence," together with the garden or grounds you occupy and enjoy with it. If a property was genuinely your only or main home for the whole time you owned it, the gain is fully relieved and there is nothing to pay.

Two ideas inside section 222 cause most of the trouble, so it is worth fixing them now.

The garden is limited to a "permitted area." That area is 0.5 of a hectare—and crucially, that figure is inclusive of the ground the house sits on, not on top of it (s.222(2)). A larger area only qualifies if it is "required for the reasonable enjoyment" of the house given its size and character (s.222(3)). This is the battleground in any dispute about a big plot.

You can only have one main residence at a time. Where you have two or more homes, you can nominate which one counts—but only within a strict window, which we come back to below.

The Amount Of Relief And The Final-Period Rule

Section 223 sets the amount. You get full relief if the property was your only or main residence throughout your period of ownership, "except for all or any part of the last 9 months" of that period. Those final 9 months always qualify, even if you had already moved out, as long as the property had been your home at some point (s.223(2)(a)).

This final-period rule is a common trap, because the number has changed twice. It was 36 months before 6 April 2014, then 18 months, and Finance Act 2020 cut it to 9 months for disposals on or after 6 April 2020. If your sale completed recently, only the last 9 months are automatically covered—not the 18 you may have read about in older guidance. One exception survives: a longer 36 months final period applies where the seller (or their spouse or civil partner) is a disabled person or a long-term care-home resident with no other qualifying home (s.225E).

You Have To Prove The Relief Is Due

Here is the part that catches people off guard. PRR is a relief you claim, and on any appeal the burden is on you to show the assessment or amendment is excessive (s.50(6) TMA 1970). HMRC does not have to prove you owe the tax; you have to prove the relief applies. That makes your evidence—when you lived there, what your intentions were, what the property was used for—the thing that wins or loses the case.

Where HMRC Restricts The Relief: The Five Flashpoints

Almost every PRR dispute comes down to one of five questions. Work out which one your letter is really about, and you will know which argument you are having.

1. Was It Ever Really Your "Residence"?

The first question is whether you ever resided there in the legal sense—not just whether you owned it or stayed in it briefly. Quality of occupation matters more than the number of nights.

The leading authority is Goodwin v Curtis [1998] STC 475, a Court of Appeal decision. A newly separated man lived in a farmhouse for around five weeks—after it had already been put on the market, and having already arranged to buy another property he intended as his main home. The court held that whether occupation amounts to "residence" is a question of fact and degree: residence means "something more than temporary occupation" and needs "some degree of permanence, some degree of continuity or some expectation of continuity." He lost. HMRC sets the same test out in its manual at CG64460.

This is the flashpoint for short stays and "flips." If you moved into a property for a brief period before selling, HMRC may argue it was a stop-gap, not a residence. What helps you here is evidence of genuine home-making: the electoral roll, utility accounts in your name, your GP and dentist registration, where your post went, where your children were at school, and how you furnished and lived in the place. What hurts is a property that was on the market the whole time, or a stay that was always meant to be temporary.

2. When Did Your "Period Of Ownership" Begin?

Relief is measured across your period of ownership, so when that clock starts can decide how much of the gain is covered. The leading case is Higgins v HMRC [2019] EWCA Civ 1860. Mr Higgins bought an apartment off-plan—a space in a tower at St Pancras—years before it was built. He could not occupy it until completion, lived there once it was finished, and then sold. HMRC argued his period of ownership ran from exchange of contracts, creating a long non-occupation gap and restricting the relief. The Court of Appeal disagreed: period of ownership runs from completion, not exchange. Otherwise almost no buyer of a new-build home would get full relief, which cannot have been Parliament's intention. He won.

A statutory cushion now overlays this. Section 223ZA, added by Finance Act 2020, treats a delay of up to 24 months before you move in as a period of occupation—where the delay was caused by building, renovating, or selling your previous home, and you do actually move in within that window.

The point can also cut in your favour on a rebuild. In Lee v HMRC [2023] UKUT 242 (TCC), a couple bought a house, demolished it, built a new one, lived in it as their main home, and sold. HMRC argued the period of ownership ran from the original land purchase. The Upper Tribunal held that the gain on the new dwelling-house is measured against the ownership of that new house—so full relief was due. If your dispute is about a new-build or a demolish-and-rebuild, this is the line of argument to understand.

3. Is The Garden Bigger Than Half A Hectare?

If your home came with a large plot, HMRC may relieve only the house plus 0.5 of a hectare and tax the gain on the rest. The law allows a larger permitted area, but only where the extra land is "required for the reasonable enjoyment" of the house given its size and character (s.222(3)). HMRC's guidance on this is at CG64818 onwards.

This is a valuation-and-character question, and it is genuinely arguable. A substantial house may reasonably need more than half a hectare; a modest house with a huge paddock may not. If HMRC has carved your grounds down to the default area, the size and character of the house, the layout of the land, and any professional opinion on what is "required for reasonable enjoyment" are what the tribunal weighs.

4. Do Your Periods Of Absence Actually Qualify?

If you were away from the home for a stretch, certain absences are still treated as occupation—but only if they fit the statutory categories and meet two conditions. Section 223(3) covers:

  • absences for any reason totalling up to 3 years;
  • any period working in an employment with all duties performed outside the UK—with no time limit; and
  • absences of up to 4 years where your UK workplace or a condition of your job required you to live elsewhere.

The catch is the two conditions. Condition A (s.223(3A)) requires that the property was your only or main residence at some point before the absence. Condition B (s.223(3B)) normally requires that you returned to it as your only or main residence afterwards—though for the work-related absences, you are not penalised if your job genuinely prevented you from going back. HMRC explains the mechanics at CG65030 onwards. If HMRC has refused an absence claim, the usual reason is a failure of Condition A or B—so the question is whether you lived there before, and whether you returned (or were stopped from returning by work).

5. Was It Acquired Or Improved "To Realise A Gain"?

The last flashpoint is the anti-avoidance rule, and it is the one to take seriously. Under section 224(3), the relief does not apply to a gain if the property was acquired "wholly or partly for the purpose of realising a gain" from selling it—nor to the part of a gain attributable to later expenditure incurred for the same purpose. This is HMRC's weapon against serial developers who dress up a string of project sales as a succession of "main residences." HMRC's guidance is at CG65200 onwards.

Separately, section 224(1) apportions the relief where part of the home is used exclusively for a business. The word "exclusively" matters: a home office that doubles as a spare room or is also used privately usually keeps full relief—it is the room set aside solely for business that is carved out.

What Changed In April 2020 (The Biggest Blind Spot)

If you sold recently and the bill is bigger than you expected, the most likely culprit is a set of changes that took effect on 6 April 2020. Many sellers are working from older rules without realising they have moved.

The final period was cut to 9 months. As above, the automatic tail at the end of ownership dropped from 18 months to 9 months. If there was a gap between moving out and selling, more of it may now be taxable.

Lettings relief was drastically restricted. This is the big one for anyone who let out a former home. Before 6 April 2020, letting your old home while you lived elsewhere could attract a generous lettings relief. From that date, section 223B only gives lettings relief where you share occupancy with your tenant—part of the house is your main residence and another part is let, at the same time. The relief is capped at the lesser of the PRR amount and £40,000. If you moved out entirely and then let the whole house, the old whole-house relief is gone—you keep only the relief for the period you actually lived there, plus the 9 months tail. A great many sellers do not know this changed, and it is a frequent reason a 60-day return gets corrected.

Two helpful additions arrived too. A relaxation of the nomination rules (s.222(5A)) and the 24 months grace period for delayed occupation (s.223ZA) both date from the same reforms.

The single most important question in any PRR dispute is therefore which tax year, and which disposal date, HMRC is assessing. The rules that applied on the day you completed are the rules that decide your case.

Two Or More Homes: The Nomination Trap

If you owned more than one property you lived in—a city flat and a country house, say—only one can be your main residence at a time, and you can nominate which. But the nomination must reach HMRC within 2 years of a change in your combination of residences (s.222(5)). Miss the window and you cannot simply pick the more advantageous home later—the question of which was your main residence is then decided on the facts.

Finance Act 2020 softened this slightly: section 222(5A) lets a late nomination through where, during the period, you held more than a negligible value in only one of the residences. There is also relief where you live in job-related accommodation but intend to occupy a property you own as your main home in due course (s.222(8)). If HMRC has disputed which of two homes qualifies, whether a valid nomination was made—and when—is the heart of it.

If you never nominated at all, you are not automatically worse off. With no valid nomination on file, which property was your main residence is settled on the facts—where you genuinely lived, day to day. That makes your occupation evidence for each home (where you slept, where your post and bills went, where your family was based) the thing that carries the argument, exactly as it does on the quality-of-occupation question above.

Working Out The Real Number

Before you fight the whole bill, it is worth seeing how the relief is actually calculated—because the unrelieved slice is often far smaller than the letter's headline figure implies.

PRR works as a fraction of the gain. You take the gain on the property, work out how many months of your ownership qualify for relief (the months it was your only or main residence, plus the final 9 months tail), divide that by the total months you owned it, and relieve that proportion of the gain. Only the rest is taxable.

A simple worked example shows the shape of it. Say you owned a property for 10 years (120 months) and made a gain of £120,000. You lived in it as your only home for the first 7 years (84 months) and let it out for the last 3. The qualifying period is those 84 months plus the final 9 months (9 months)—93 months in all. The relieved fraction is 93 ÷ 120, so about 78% of the £120,000 gain—roughly £93,000—is covered by PRR. The unrelieved slice is the remaining 27 months ÷ 120, about £27,000.

From that taxable slice you then subtract your CGT annual exempt amount—£3,000 for 2024-25 onwards—before any tax is due. What is left is taxed at the residential-property CGT rate: 18% to the extent it falls within your basic-rate band, and 24% above it, for residential disposals on or after 30 October 2024. These replaced the older 10%/18% residential rates, so check your rate against your disposal date on the GOV.UK CGT rates page—the rate that applies is the one in force when you completed the sale. Once the relief fraction, the AEA and your true cost figures all land, the honest bill is frequently a fraction of the letter.

Penalties And Interest On Top

A PRR restriction is not always just the tax. If HMRC concludes your return understated the gain, it can add a behaviour-based inaccuracy penalty—a percentage of the extra tax that depends on whether the error was careless, deliberate, or deliberate and concealed. On the 60-day property return, a late or missing return can also draw late-filing and late-payment penalties of its own. And interest runs on unpaid tax at 7.75% from the original due date until you pay, regardless of the appeal. So the figure on the letter may be tax plus penalty plus interest—worth separating out, because the penalty and the tax are challenged on different grounds. Our guides to reducing HMRC penalties and interest on unpaid tax cover each in turn.

The Appeal Route: Which Letter, Which Hook

How you appeal depends on the letter you received. There are two main routes into the tribunal, and they use different parts of the Taxes Management Act 1970.

First, identify which letter you are holding—the wording gives it away. A closure notice says it is ending an enquiry into your return under s.28A and states an amendment to your figures. A discovery assessment is a fresh, standalone assessment for an earlier year and cites s.29. A 60-day-return correction amends the figures you already reported on the property return. A plain self-assessment amendment changes the self-assessment you filed. Whichever it is, the appealable figure and the decision date you are working to are stated on the letter itself—find them before you do anything else.

If you have a closure notice (HMRC's formal decision ending an enquiry into your tax return, under s.28A TMA), you appeal the conclusion or amendment it states under section 31(1)(b). Our guide to HMRC enquiries and closure notices walks through that lifecycle.

If you have a discovery assessment—HMRC reopening a year you thought was closed, usually after finding out about a sale (s.29 TMA)—you appeal under section 31(1)(d), the route for any assessment that is not a self-assessment. A discovery assessment is not automatically valid: HMRC has to clear statutory conditions, and there is a real argument to be had about whether it could have made the discovery sooner. The "hypothetical officer" test that decides this is explained in our analysis of Langham v Veltema and in our guide to discovery assessments. For a PRR dispute, the question is often whether what you disclosed should have alerted HMRC—so this can be a strong line where you reported the sale.

If your dispute came through the 60-day property return, the reporting regime and its penalties are a separate machinery—see our guide to CGT 60-day reporting appeals. A correction to that return, or an enquiry into it, can flow into the same appeal routes above.

Whichever route applies, the deadline is 30 days from the date of the decision (s.31A TMA). Within that time you can ask for a free HMRC internal review by a different officer, or notify your appeal to the First-tier Tribunal under the section 49 procedures—or do the review first and go to the tribunal afterwards if it does not resolve things. The review is a genuinely free first option: a different officer takes a fresh look, normally within 45 days, and asking for it does not cost you the tribunal route—if the review goes against you, you still have time to notify the tribunal. Our step-by-step guide to appealing covers the filing mechanics.

Whether to pay the CGT while you appeal. Appealing does not, by itself, freeze the bill. But you can apply to postpone payment of the disputed tax until the appeal is decided (s.55 TMA)—you ask to hold over the amount you say is not due, and pay only any part you accept. The catch is that interest keeps running on anything that turns out to be payable, so a postponed bill is not an interest-free one. Our guide to postponing payment during an appeal explains how to make the application and what HMRC weighs.

One realistic note. The tribunal decides whether the assessment is valid and in time, and whether the relief is due on the facts and the law. It cannot simply reduce your bill because the outcome feels harsh or because HMRC could have warned you sooner—those are different complaints. Your case has to be that the relief is legally due, or that the assessment is wrong or out of time.

What To Do Now

  1. Pin down the disposal date and tax year. The rules in force on completion decide everything—especially the 9 months final period and the post-2020 lettings restriction. Get this straight before anything else.
  2. Work out which flashpoint your letter is really about. Quality of occupation, period of ownership, permitted area, periods of absence, or the anti-avoidance rule. Each has a different argument and different evidence.
  3. Gather your occupation evidence. Electoral roll entries, utility bills, council tax records, bank and credit-card statements showing the address, GP and dental registration, your children's school records, and removal or furnishing receipts. This is what proves "residence" and the periods you lived there—and the burden is on you (s.50(6) TMA).
  4. Check the right figures for your year. The CGT annual exempt amount is £3,000 for 2024-25 onwards, and residential-property gains are taxed at 18% within the basic-rate band and 24% above it for disposals on or after 30 October 2024—different from the older 10%/18% rates, so confirm the rate for your disposal date on the GOV.UK CGT rates page. Often the honest bill is far smaller than the letter implies once the relief, the AEA and your real cost figures land—the worked example above shows how the fraction falls out.
  5. Appeal in time, and consider a review. You have 30 days from the decision. Diary it. A statutory review is a free second look; if it does not resolve things you can still go to the tribunal.
  6. Draft your grounds carefully. Our guide to writing grounds of appeal shows how to structure a PRR challenge—identify the flashpoint, state the facts, attach the evidence, and put any arguments in the alternative.
  7. Get help if you are unsure. A Chartered Tax Adviser or accountant can be engaged for the appeal alone, and free help is available from TaxAid (taxaid.org.uk) and the Low Incomes Tax Reform Group (litrg.org.uk).

Most genuine homeowners keep their relief in full, and many readers facing a restriction have a real, arguable case—on quality of occupation, period of ownership, or permitted area. Equally, a brief stay in a property that was on the market throughout, or a string of "main residences" that were really development projects, is exactly what Goodwin v Curtis and the section 224(3) rule exist to catch. Be honest with yourself about which you are, and build the case the facts will actually support.

For a related CGT relief HMRC commonly disputes, see our guide to Business Asset Disposal Relief appeals; for the wider picture of how any HMRC dispute unfolds, see our tax dispute timeline.

Key Legislation And Resources

Legislation

Key Cases

  • Higgins v HMRC [2019] EWCA Civ 1860—period of ownership runs from completion, not exchange (off-plan purchase; taxpayer won)
  • Goodwin v Curtis [1998] STC 475—"residence" is a question of fact and degree, needing some permanence or continuity, not mere temporary occupation (taxpayer lost)
  • Lee v HMRC [2023] UKUT 242 (TCC)—on a demolish-and-rebuild, the gain is measured against ownership of the new dwelling (taxpayers won)

HMRC Guidance

On This Site

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.

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