Capital Gains and Principal Private Residence Relief Changes to Residential Property

With effect from 6th April 2020, the payment and administration of capital gains tax (CGT) is changing. Where CGT is due on a residential property disposal a return will need to be filed, within 30 days of conveyancing. The notional CGT due will also be payable within 30 days. This applies to everyone, both UK and non-UK residents. If you dispose of any UK residential property, please let us know either before or just after the disposal takes place, so we can ensure the CGT position is reviewed and any return filed, and tax paid within the 30-day limit.

Changes to Principal Private Residence Relief

The government is also making a number of changes to the Principal Private Residence (PPR) relief from April 2020. These changes mainly affect taxpayers who have occupied a residential property as their main residence and have also let the property out at some point during the period of ownership.

  1. Final period exemption being reduced from 18 months to 9 months

Currently, if a property has been occupied at any time as an individual’s main PPR, the last 18 months of ownership is disregarded for CGT purpose.

From 6 April 2020, this final exempt period will be reduced from 18 months to 9 months.

Effectively, this change has already started as the 9-month rule will have retroactive effect for any sale that takes place on or after 6 April 2020 meaning that the homeowner could be presented with an unexpected CGT bill.

  1. Lettings relief is restricted unless the owner remain in ‘shared occupancy’ with the tenant.

Where the PPR relief is available, there is an additional relief which can also reduce the extent to which a capital gain on a property is chargeable, if the residence has been fully or partially let. This is equivalent to the lower of £40,000 or the amount of gain exempt by reason of the PPR claim or gain attributable to the letting available per owner or joint owner of the property. The initial aim of this relief was to enable people to rent out spare rooms easily but has since been used for relief in cases where a whole property is let out, provided the property was at some point the owner’s main residence.

From 6 April 2020, letting relief will be restricted and will only be available to those who are in shared occupancy with a tenant. Effectively, this means letting relief will not be available for those periods where an owner has moved out of the property and therefore no longer shares occupation with a tenant. This will result in letting relief only being available in very limited circumstances.

  1. Married couples and civil partners

Generally, there is no gain/no loss on the transfer of assets between married couples and civil partners, making it an exempt transfer for CGT.

The current rule provides for transfers of only the main residence between married couples and civil partners, the receiving spouse will inherit the transferring spouse’s period of ownership and the use to which the property was put during that time, even if that time period started before marriage. To make the tax rules consistent, the changes provide that when a spouse or civil partner transfers an interest in their main residence to their spouse or civil partner the property’s history (such as purchase cost, type of occupation, use etc.) is transferred with the dwelling to the receiving spouse/civil partner. This applies to any residence, whether main or not. This could reduce the main residence relief where a let property is transferred to a spouse and then becomes the couple’s main home.

Please do contact us if you would like help with any of the above or indeed your tax planning generally.

The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.