Posted by James Pearson on 29 Jul 2019
CGT Relief on Homes Slashed
The 2020 Finance Act is set to reduce the scope of the valuable Private Residence Relief (PRR), which prevents Capital Gains Tax (CGT) being charged when you sell your home. From 6 April 2020, the CGT payable on the sale of a residence may increase by up to £11,200 due to a restriction to PPR ‘Letting Relief’.
Currently, when you sell a property there is no CGT charged for any periods that you have occupied that property as your main home. There are additional periods of ‘deemed occupation’ (e.g. where you live elsewhere due to your work) which includes the last 18 months of ownership, even if you have already moved out for that period. This final period of deemed occupation will be reduced to 9 months for sales on or after 6 April 2020.
There is currently an additional relief of up to £40,000 of gain for periods where the property has been let out, if that property has also been your main home (e.g. where you have kept your old home to let out after moving house). For disposals on or after 6 April 2020, this relief will be restricted to periods where the owner has still been in occupation of the property – effectively this will restrict the relief to owners who let out to lodgers, completely denying the relief to the buy-to-let market.
Where the whole property has been let, the relief will be entirely lost from 6 April 2020, with no ‘grandfathering’ of the potential relief prior to that date. For owners who currently have the full £40,000 of relief, their CGT bill on disposal could therefore increase by £11,200 from 6 April 2020 onwards.
HMRC have pointed out that Letting Relief was only originally intended to apply to owners letting out a room, so that the proposed change is to make the relief work as intended. However, given that it has taken over 40 years to correct this position, applying such a ‘cliff-edge’ by not recognising any relief to date seems to fly in the face of normal tax procedure.
Once again the small buy-to-let landlord is being singled out for harsh tax treatment, and if you own rental property, this would be a good time to seek tax advice in relation to your property portfolio.
If you would like any advice regarding capital gains tax relief on homes or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org