Changes to Main Residence Relief from Capital Gains Tax

What is main residence relief?

Principal Private Residence Relief, or (PPR) is a relief that enables taxpayers to sell their homes without having to pay Capital Gains Tax. In order to claim the relief the property being sold must be the tax payer’s main residence.

What are the recent changes?

It seems a while ago now but HMRC had indicated previously that it intended to reduce the availability of this valuable relief. The consultation document on the detail has now been published. At present an individual’s main residence is exempt from capital gains tax subject to some important restrictions, including for people who are not UK tax resident, if part of the property is not used as a residence or if the land associated with it is more than the “permitted area”.

Restrictions to keep in mind

Where a property has not qualified as a main residence for the whole of the individual’s ownership, the duration of ownership is apportioned into exempt and non- exempt periods. The last 18 months of ownership is regarded as exempt even if the property is not occupied at this time. From 6 April 2020, it is intended to reduce this final qualifying period to 9 months. Where you are likely to move out of one property before selling it, it will be worth keeping this restriction in mind to avoid any unexpected tax bills.

Restrictions on lettings relief

It is also likely that there will be a restriction on lettings relief. Lettings relief exempts a sum of up to £40,000 where a property has been used as a main residence but has also been let out. The relief is expected to be limited, also from 6 April 2020, to circumstances in which the owner co-occupies with the tenant, a much less common situation.

In better news

The consultation document also refers to changes to the qualifying period at the beginning of a period of ownership if the property cannot be immediately occupied because of building work for example. The maximum pre-occupation exempt period is to increase from 12 to 24 months. This last may be a response to a recent tribunal decision in which a person who had bought an uncompleted building received a bill as he did not take up occupation promptly enough.

What you should do next

Our Private Client team have a vast amount of experience in the property sector and welcome the opportunity to help you. It is likely that the changes will apply to disposals after 6 April 2020. Should you be considering selling you main home and there is any doubt as to the availability of the complete exemption, please do come and talk to us.