Private Residence Relief: start preparing now for changes to ancillary reliefs

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From 6th April 2020, capital gains tax relief on the sale of a taxpayer’s principal private residence relief (PPR) is set to undergo two major modifications: one relating to lettings relief, the other to final period exemption. We have examined the potential pitfalls of these changes and are suggesting how those affected can best prepare themselves over the months that follow.

Following a consultation in April 2019, HMRC announced that lettings relief will be restricted to those who share occupation of their property with a tenant. Originally introduced 40 years ago to allow homeowners to let out individual rooms on a casual basis, lettings relief has more commonly been claimed by those letting out an entire dwelling that has ceased to be their main residence. HMRC’s intention in bringing in this change is to better target the relief at owner-occupiers, as per its original purpose, rather than those who move out and subsequently let their former home.

The other major change resulting from the recent consultation is that final period exemption (FPE) will be reduced from the current 18 months to nine months, meaning homeowners will now have well under a year to sell their property and move into another without having to pay CGT. Disabled homeowners and those who move into residential care will remain entitled to an FPE of 36 months.

Both changes will come into effect for disposals on or after 6th April 2020, and will affect an estimated 40,000 taxpayers per year.

Our Tax Consultant, Kirsty Horobin, explains: “Those who currently let out a property which used to be their principal dwelling, as well as those planning to sell their home and anticipating a long wait before being able to move into a new property, would all benefit from gathering as much information as possible before April next year.

“With less than three months left to prepare, it’s wise to consider precautionary measures such as stepping up the search for a new home, selling or even considering moving back into a previously-occupied property that is currently being let out. As these are major decisions, it’s certainly worthwhile for those affected to seek professional advice sooner rather than later.

“It is also worth remembering that reporting obligations and CGT payment dates change from 6th April 2020 for disposals of residential property, so taxpayers should ensure they seek professional advice to avoid being caught out.”

For further information about our firm, please call our Leicester branch on 0116 254 9262 or our Loughborough branch on 01509 263500.