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Turning a Wreck into a Home: What Does It Mean for CGT?
Buying a rundown property with the intention of renovating it into your dream home can be a rewarding project—but when it comes time to sell, many homeowners are surprised to learn that the tax position isn’t always straightforward. Specifically, questions often arise around Principal Private Residence (PPR) relief, a valuable exemption from Capital Gains Tax (CGT) when selling your main home.
Let’s explore what happens when a property is uninhabitable when purchased and only becomes your main home after a lengthy refurbishment period.
What Is PPR Relief?
PPR relief means that if a property has been your only or main residence throughout the time you’ve owned it, you don’t pay CGT on any gain when you sell it. It’s designed to ensure you’re not taxed on the sale of your main home.
However, things get more complicated if there’s a gap between buying the property and actually moving in.
The Problem with Uninhabitable Properties
If you purchase a property that’s not fit for living—say, no functioning kitchen, heating, or bathroom—it can’t serve as your residence until it’s made habitable. And if it takes over two years to make it liveable and move in, you may think you lose the right to claim PPR relief for that entire period.
This is where the confusion starts. Some worry that since they didn’t live in the house for the first 24+ months, that time won’t count for PPR relief. So, are you taxable on the gain during the renovation period?
Understanding the 24-Month Rule
There is a general rule allowing a delay of up to 24 months between acquiring property and moving in if the delay is due to necessary alterations or refurbishments. If you move in within that window and then make the property your main home, the entire ownership period can be covered by PPR relief.
But what if renovations take longer than 24 months? Does that mean the clock starts ticking from the date of purchase, and you lose relief for the early part of ownership?
When Does Ownership Really Begin?
Here’s the crux: the concept of “ownership” for the purposes of PPR relief is not always as straightforward as the legal date of purchase.
If the property is so uninhabitable that it couldn’t reasonably be considered a dwelling, some interpretations suggest that your “ownership” for PPR purposes doesn’t truly begin until the property becomes a dwelling house—that is, fit for residential use.
This interpretation offers a practical and fair solution: if you didn’t live in the property because you physically couldn’t, and it wasn’t capable of being your home, then that period may not count against you in terms of PPR relief.
Imagine you buy a property in January 2021, but due to structural issues and lack of facilities, it isn’t habitable. You spend the next two years renovating and finally move in April 2023. In April 2025, you sell the home.
If HMRC accepts that the property only became a dwelling house in April 2023, your PPR relief could cover the entire period from that point forward, even though you didn’t move in within the typical 24-month window from the original purchase.
Things to Consider
- Evidence of Uninhabitability: It helps to keep documentation—photos, surveys, lack of utilities—proving that the property wasn’t suitable to live in at the time of purchase.
- Clear Occupation Date: Establish a clear and documented date when the property became your main home. Utility registrations, council tax bills, and personal records all help.
- Don’t Assume Partial Relief: Without full context, you may assume you’re only entitled to relief from the point of moving in. But if the property wasn’t a dwelling, to begin with, you may be eligible for full relief once it was made habitable.
Renovating an uninhabitable property into your main home doesn’t automatically mean you lose out on full PPR relief. The key question is when the property became suitable for use as a home—and whether your intention from the start was to live there as your principal residence.
The rules around PPR relief are nuanced, and HMRC may view cases differently depending on the circumstances. But with the right documentation and a clear understanding of when your home became a home, you stand a strong chance of claiming full relief.
Need Help with Property Tax Questions?
If you’ve renovated a property or plan to sell a home that wasn’t immediately livable, we can help you understand your capital gains tax position. Get expert, tailored advice to ensure you claim the relief you’re entitled to—and avoid unnecessary tax. Contact us today at Tax Accountant and secure your tax advantage.