Changes To Capital Gains Tax, PPRR And Letting Relief

For many individuals, owning and selling their own home is thought to be tax-free but, as always, it's never that simple ...

If you own a property, live in it then sell it, usually any gains will be tax-free. However, if you lived elsewhere, maybe due to work, and let out your home, what happens then?

"It then becomes more complicated!"

PPRR allows for a number of specific absences from your home, and this does include periods of letting it out to someone else. The Government has been tweaking PPRR rules recently, and there are some important changes coming from April 2020.

CGT rules state that a transfer of assets between either married couples or civil partners take place with no-gain/no-loss. Should one spouse transfer their main or only residence to the other spouse, they inherit the period of ownership, even if they lived there before the marriage.

Of course, this doesn't apply to a property which isn't their main residence at the time of the transfer. This may have either a positive or negative tax effect depending on the circumstances.

For consistency, the new rules are changing to cover this discrepancy so ownership history will be transferred from one spouse to the other, regardless of whether it is a main or only residence.

The final period of ownership is normally tax-free, regardless of whether it is occupied by the owner or not. This exemption period is reducing from 18 months to just 9 months from April 2020. The 36-month relief period for disabled or those moving into care will not change.

This was introduced, ensuring people could let out spare rooms in their home on a casual basis without any loss of PPRR. The Government now believes this covers entire properties being let out as long as at some stage, it had been a main residence for the owner.

If a gain arises from the sale of a property, part of the dwelling is the owners only or main residence, and another part is let out as a residence, then lettings relief may be due.

So this means that Lettings Relief isn't available for those periods of time when the owner moves out and no longer resides in the property that has been let out.

In addition to the PPRR and Lettings Relief changes, the Government is now introducing a reporting requirement on the sale of any residential property in the United Kingdom. This includes residential investment properties and those situations where PPRR doesn't fully cover the sale.

A special report must now be completed within 30-days of completion, and the tax liability is due on the filing date of the return. This is a change from the current date of 31st January in the tax year following the disposal.

These changes are complex and significant, especially the Lettings Relief changes which are now retrospective. But fear not, with a little forward planning and some good property tax advice you'll pay minimal tax.

If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.