Changes To Capital Gains Tax, PPRR And Letting Relief
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Posted by Roger Eddowes on 02/12/2019 @ 8:00AM
For many individuals, owning and selling their own home is thought to be tax-free but, as always, with Capital Gains Tax, Principal Private Residence Relief and Lettings Relief, the situation around tax is never quite as simple as that ...
If you want to minimise your Capital Gains Tax, you need to be aware of the changes to PPRR and Letting Relief!
copyright: andreypopov / 123rf
There are a set of tax rules called Principal Private Residence Relief (PPRR) that are designed to ensure home sales are exempt from Capital Gains Tax, but only under certain conditions.
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.
Transfers between married couples
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
The final period of ownership is covered by an exemption, 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.
The need to report and pay tax
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 those to Lettings Relief which are now retrospective. But fear not, with a little forward planning and some good property tax advice you'll pay minimal tax.
Until next time ...
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About Roger Eddowes ...
Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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