Private residence relief- changes afoot for 2020

Wednesday, August 28th, 2019

As Wolverhampton’s leading accountancy firm, we like to demonstrate we are pro-active by giving our clients a “heads up” on any forthcoming tax changes to enable them to plan and take the appropriate action to reduce their tax bills before they come into effect.

With that in mind, we thought we would highlight some changes to private residence relief rules that could affect you if you had intended to dispose of your principal private residence (“PPR”) after 6 April 2020.

Reduced final period exemption

Introduced to counteract “second home flipping” (a process allegedly also undertaken by some MPs when selling their London residences post-term), as announced in the Autumn 2018 Budget, there will be a reduction in the existing final exemption period that applies when selling a PPR.

Currently, where a property has been the main residence, the last 18 months of ownership counts as a period of “deemed occupation”, even if the property had during that time been left empty or alternatively, let to tenants. 

However, following the Budget announcement, this exemption period will now be halved to nine months for disposals occurring on or after 6 April 2020. 

Changes to letting relief

Currently, letting relief provides up to a £40,000 deduction when computing any capital gain on the disposal of the main residence that during its period of ownership had also been let out to tenants.

The relief is the lesser of i) £40,000, ii) the gain attributable to the let period, and iii) the amount of private residence relief. Note that for a couple, this had the potential to exempt up to £80,000 of any gain from capital gains tax.

The draft legislation, effective from 6 April 2020 will limit relief to those situations where the owner remains in shared occupancy with the tenant, i.e. has lodgers living in the house. Thus, renting out the property to tenants whilst living elsewhere will no longer attract relief.

Consider your position

If you were hoping to take advantage of letting relief on the sale of a property, and/or, make use the final period exemption, given the changes outlined above, where circumstances allow, you may wish to now consider disposing of the property prior to 6 April 2020.

As ever our professional team here at Copia Wealth & Tax Ltd, Wolverhampton are here to help. For expert advice in this area or to help you estimate the additional tax that might be due following the amendments to these generous reliefs, call us now on 01902 783172 for a confidential and FREE initial consultation or click just HERE to contact us via our website.

We look forward to hearing from you.