Background
During the 2018 Budget the Chancellor announced proposed changes to the final period exemption for principal private residence (PPR) relief and to lettings relief. The Chancellor stated the intention was for the capital gains tax PPR final period of ownership relief to reduce from 18 months to 9 months, whilst the capital gains tax letting relief was to be reformed so that it would only be available where the owner is in shared occupancy with the tenant.
The consultation process on these two changes has recently ended and the outcome published has confirmed the government’s plan to go ahead with the changes. Both changes are due to come into effect for disposals on or after 6 April 2020.
Detail
Principal private residence (PPR) relief
PPR relief enables an individual to claim relief from capital gains tax (CGT) on the sale of a property provided that the property has been the owner’s main residence at some point during the ownership. PPR relief covers not only any gain relating to periods of actual occupation of the property but also certain other periods.
Currently, the final 18 months of ownership almost always qualifies for PPR relief, even if the owner has moved out perhaps due to a cross-over period when replacing their main home. However, for sales after 5 April 2020 the final 18 months ‘exempt period’ will be halved to 9 months.
Lettings relief
Currently where PPR relief is available but may not cover the whole period of ownership due to the property having been rented out at some point, then further respite from CGT can be claimed in the form of lettings relief which can reduce any chargeable gains arising during the let period.
Lettings relief is the lower of the gain available for PPR relief or the amount of the gain arising during the let period, subject to a maximum relief of £40,000 per person.
From 6 April 2020, lettings relief will only be available on disposal of a property to those who share occupation of their house with a tenant. The reformed lettings relief will not be available for those periods of ownership where the owner has moved out of the property and therefore no longer shared occupation with a tenant or tenants.
Therefore, any individuals who are considering potentially selling a property, which has at some point in the past been their main home, in the next 12 months may want to consider bringing forward any possible sale to take account of the current rules on PPR and letting relief in order to minimise their exposure to CGT. The new rules will apply to all sales on or after 6 April 2020 irrespective of when the property was acquired.
If you have any questions concerning the above changes to PPR relief and lettings relief, please contact our Tax Director, Jenny Marks.
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