Partial PRR with Business Use: A Case Study
Sarah, a self-employed therapist, has always used one room of her 5-room house exclusively for seeing clients. She is now selling her home.Sarah has lived in her home for 10 years and is selling it at a large profit. The house has 5 rooms of roughly equal size. One room has never been used for any domestic purpose; it has always been her therapy room.
The Exclusive Business Use Rule
Private Residence Relief (PRR) does not apply to any part of a home that has been used exclusively for business purposes throughout the period of ownership.
Calculating the Taxable Gain
- Total Gain: Sarah calculates her total capital gain on the property to be £100,000.
- Apportionment: Because one of the five rooms (i.e., 1/5th or 20% of the house) was used exclusively for business, that portion of the gain is not covered by PRR.
- Taxable Portion: £100,000 (Total Gain) × 20% = £20,000.
The Result
While £80,000 of her gain is tax-free thanks to PRR, Sarah has a taxable capital gain of £20,000 that she must declare on her tax return and pay Capital Gains Tax using our Capital Gains Tax calculator on. If she had used the room for mixed business and personal use (e.g., it was also a guest bedroom), she may have been able to claim full PRR.