Key Changes to Private Residence Relief Announced

What is the issue?

Following a number of recent changes that have increased the tax cost of owning more than one property, it was probably thought by property owners that they would be left alone in the 2018 budget.  

It seems, however, that the chancellor is not yet finished with property, this time around targeting the highly beneficial Private Residence relief (“PPR”) with two key changes that are due to take effect from April 2020.  

The Changes

1. Shortening of Final Period Exemption

PPR essentially exempts any capital gain on the sale of a property that relates to a period of occupation by the owner.  When a person sells a property that they have always lived in they should, therefore, not pay capital gains tax on the capital gain property due to PPR.

Current rules treat the final 18 months ownership of a property, which has at some point been a person’s main residence, as a period of occupation even if the person wasn’t living there. This is helpful to people who have delayed selling their main home, perhaps due to a downturn in the housing market or where they have moved in with a new partner and decided to retain their old home for a period.  

The bad news is that from April 2020 this final period exemption will be reduced to 9 months.

2. Lettings Relief Restriction  

Currently where a person has let a property which has at some time been their main residence, Lettings relief applies to exempt capital gains of up to £40,000 that relate to the let period.  The £40,000 figure is per person and therefore a married couple who jointly own a property get up to £80,000 of lettings relief, which can be worth up to £22,400 in capital gains tax.

From April 2020 Lettings relief will only be available to property owners who are in shared occupancy with the tenant which is likely to be a rare scenario.  

How can we help?

 Haines Watts can assess your situation and help you understand the impact that the proposed changes could have on you.  We can calculate the capital gains tax payable on a hypothetical sale of your property now and compare this with a sale after the rules take effect.

This could help you decide whether potential savings could be made by selling your property sooner rather than later. Contact us today to discuss how we can help.