The government is amending current tax legislation relating to the sale of residential properties. Here’s everything you need to know about the changes to Principal Private Residence (PPR) Relief and Lettings Relief, which are due to come into effect from 6th April 2020.
What’s changing and what does it mean?
In the 2018 Autumn Budget, it was announced that from 6th April 2020 the final period exemption for PPR Relief would reduce from 18 months to 9 months.
Anyone who sells or disposes of a property which they have not used as their only or main residence throughout their period of ownership is potentially subject to paying Capital Gains Tax.
Currently, PPR Relief gives an individual selling their home an 18-month period of Capital Gains Tax exemption, known as the final period exemption. This applies whether the owner resides in the property during that period, or if they are absent from the property, but it is treated as if they are in occupation, provided that the property has been their only or main residence at some point during their period of ownership.
This extended period is in place for multiple reasons; for example, couples facing complications from divorce proceedings may face delays in the sale of a property that are out of their control, while there are also regional differences in the length of time it can take to sell a residence.
What else is changing?
A separate type of relief applies where an individual sells a property that has been their main home and which has also been let out any period of time. Lettings Relief can be available in addition to PPR Relief, and where it applies, the gain arising from the let period can be exempt by up to £40,000.
The new legislation coming into place on 6th April 2020, however, will see Lettings Relief only apply in situations where the owner was in shared occupation of the property with their tenant.
There are also a series of technical changes to PPR Relief rules, relating to nominations of a property as main residence within the current two-year nomination period; job-related accommodation relief; and inter-spousal transfers.
How does this affect me?
During a consultation in 2019, the public were invited to respond to these changes, with the majority saying the final period exemption of nine months is too short. Many also opposed the changes to Lettings Relief, saying landlords have not had sufficient time to prepare for the changes. In reply, the government said landlords were free to reorganise their affairs, including disposing of their property ahead of 6th April 2020.
If you are preparing to sell or are in the process of selling, a property that you have occupied as your main home for some but not all of your period of ownership, or you’ve let out your home, then these changes are likely to impact you. In short, you are more likely to pay Capital Gains Tax after 6th April 2020 than you were before.
The changes to the final exemption period do not apply to those who are disabled or in long-term residential care, where they continue to be entitled to a final period exemption of 36 months.
Anyone seeking advice on how these changes will affect them, and how to prepare ahead of 6th April 2020, can contact their local Champion Accountants office for support.