Roll-Over Relief vs. Private Residence Relief: What’s the Difference?
Apr 14, 2025
Capital Gains Tax (CGT) creates confusion for UK property sellers because of its complex rules. The two primary methods to minimise Capital Gains Tax involve Roll-Over Relief and Private Residence Relief, but these options work in unique conditions.
This article explains the main distinctions between Roll-Over Relief and Private Residence Relief (PRR), explaining their application requirements and tax savings potential.
What Is Capital Gains Tax (CGT)?
Capital Gains Tax is a tax on profit you gain when you sell or 'dispose of' an asset that's risen in value. This includes property that is not your main home, for example:
- Buy-to-let properties
- Holiday homes
- Commercial buildings
- Land
Roll-Over Relief: For Business Assets
What It Is:
The rollover relief mechanism defers Capital Gains Tax liability when you shift funds from selling a qualifying business asset into purchasing another business asset. The tax moves to offset the new business asset costs, which decreases your reporting gain amount until you sell the replacement property.
Common Use Cases:
- You can defer capital gains tax when you sell business premises, including offices and factories.
- When you sell qualifying Furnished Holiday Lets (FHLs)
- When you exchange your business premises for other buildings or lands
Key Rules
- Both the original business asset and its replacement asset need to operate in your business operations.
- You need to purchase the new asset during the 3-year period that starts before or after the initial sale.
- Private residences do not qualify for this relief unless they meet the criteria for business use properties, such as Furnished Holiday Lets.
Private Residence Relief (PRR): For Your Main Home
What It Is:
The Private Residence Relief system permits full or partial exemption of Capital Gains Tax on your main place of residence.
Common Use Cases:
- Selling your main home
- The rules of Private Residence Relief apply to properties that served as your main residence for any extent of your ownership duration.
Key Rules:
- You need to live in the property exclusively, while using it as your main residence.
- The availability of Private Residence Relief decreases proportionally based on whether you let the property or conduct business operations there and the number of homes you possess.
- PRR became limited to the amount of time you resided there, combined with the last nine months of ownership since April 2020, but previously had an 18-month window.
Key Differences: Side-by-Side Comparison
| Feature | Roll-Over Relief | Private Residence Relief |
|---|---|---|
| Type of Property | Business assets (incl. some holiday lets) | Main residence only |
| Purpose Defer | CGT when reinvesting in a new asset | Exempt part or all of CGT on sale |
| Can Apply to Residential? | Only if used for business (e.g. FHL) | Yes if it’s your main home |
| Time Limit for New Asset | Must reinvest within 3 years | Not applicable |
| CGT Outcome | Tax deferred (not eliminated) | Tax potentially eliminated |
| Common Users | Business owners, property investors | Homeowners selling main home |
Final Thoughts: Knowing which policy between Roll-Over Relief and Private Residence Relief applies to your case can result in substantial economic differences. Homeowners who sell their primary residence seek PRR benefits, but business owners and property investors benefit most from rollover relief for their business asset acquisitions.
