mportant changes will come into force in April 2020 which relate to tax relief that is due on the sale of property which was previously a taxpayer’s Principle Private Residence “PPR” during any point in the period of its ownership.
Current Rules
A property which has been a taxpayer’s PPR and has also been let during the period of ownership can be subject to two different tax reliefs where there is a taxable capital gain arising on the sale of the property:
- The period of time which relates to PPR is apportioned over the total ownership period (usually in months) and this portion of the gain is exempt from charge to CGT
- The last 18 months of ownership is always deemed to be a relevant period for PPR, which means this period will always be exempt from CGT.
- The period of time which relates to when the property is let is also apportioned and this is exempt up to the maximum of:
• the portion of this time that relates to the PPR amount (per the first bullet point above),
• the portion of the gain that relates to the lettings period,
• £40,000
Proposed Changes
From April 2020 lettings relief will only be available to those who are in shared occupancy with the tenant. This will remove potentially £40,000 of relief for taxpayers who do not meet these conditions and the tax cost will be potentially £11,200 per taxpayer (or £22,400 if a property is owned jointly with a removal of £80,000 of relief).
The last exempt 18 months of ownership will be reduced to 9 months.There are special rules for those moving into care homes and for disabled people, and the current 36 month exemption for these individuals will not change.
* Note: these changes are currently subject to a consultation period between HMRC and professional advisors.
Before and After – Tax Impact
Bill and Ted purchase a property on 1st April 2000 for £220,000 which they immediately move into. On 1st May 2005 they move out and let the property on a commercial basis to a tenant. On 1st June 2020 Bill and Ted decide to sell the property and it is sold for £450,000.
The property is owned for 242 months and the gain is £230,000.
Old Rules:
The PPR period relevant to the property is 1st April 2000 to 30th April 2005 which is 61 months, plus the last 18 months which are deemed totalling 79.
The letting period is 1st May 2005 to 1st June 2020 (less the deemed 18 months) which is 163 months. The total apportioned gain for this period is the lower of the amounts at £40,000 each per taxpayer.
New Rules
The PPR period relevant to the property is 1st April 2000 to 30th April 2005 which is 61 months, plus the last 9 months which are deemed totalling 70. At the time of sale, Bill and Ted are not living in the property and therefore no lettings relief is available.
| Old Rules | New Rules | ||
|---|---|---|---|
| Taxable gain £230,000 | 230,000 | 230,000 | |
| PPR relief: | |||
| 79/242 x £230,000 | (75,083) | ||
| 70/242 x £230,000 | (66259) | ||
| Letting relief | (40,000) | ||
| (40,000) | |||
| Gain Subject to CGT | 74,917 | 163,471 |
Would you like help and advice on this or any other tax issue?
Please contact Amy Robins by telephoning 01932 564098 or email us using our ‘Contact Us’ page.
This note was published in April 2019. Please be aware that the information above may have changed in subsequent months.
This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.