Under current legislation, a property that is, or has in the past been an owner’s only or main residence, qualifies for Private Residence Relief (PPR) on the last 18 months before disposal. This relief protects the owner from any capital gains tax that may be accrued during this time, regardless of whether they are currently in residence, and allows for the time taken to sell and move house.
But, as from 6 April 2020 this relief time is being reduced to only 9 months. The result is that an owner will be subject to an additional 9 months of capital gains taxes, should the property no longer be occupied by them during that period.
Although many feel that this period is not lengthy enough, the government considers it to be sufficient for most individuals to gain from the relief whilst they sell a property that is their main residence. At the same time, it also eliminates the chances of owners gaining from large amounts of tax relief on two or more properties co-currently, when additional homes are no longer being used as the main residence.
However, the existing 36-month final period exemption rules will still stand when regarding sales by those that are disabled or are in a care home.
In addition, lettings relief is also being restricted from April 2020. With current legislation, lettings relief applies when a taxpayer is liable for a taxable gain on a property that has been used as their main residence, and all or part of the property has also been let during ownership. This applies to any lease, tenancy or license, and although the property would qualify for PPR relief, the owner was not required to be in residence at the same time as the tenant, to benefit from lettings relief too.
From 6 April 2020 in order for lettings relief to apply, the owner must reside as a shared occupant in the property. So, a lodger will need to occupy a room and have shared access to other areas, rather than the property being let as a whole.
To maximize the tax relief now available and to minimize capital gains tax on additional properties that are not currently the main residence, disposal timing is now key. For those planning on selling a home they no longer occupy and have let for a period during ownership, it could be advantageous to make the sale before April 2020, thus taking full advantage of the current 18-month final period exemption and existing letting relief rules.
For further advice and help to minimize your tax obligations, please contact our friendly team on 01932 320800 or email firstname.lastname@example.org