CGT Reliefs – Hit with Both Barrels!

12th November 2018

A gain on sale of residential property is chargeable to capital gains tax (CGT) as follows:

  • 18% to the extent that the gain falls within the basic rate band
  • 28% thereafter
  • An annual exemption is available if not utilised elsewhere (currently £11,700, rising to £12,000 in the 2019/20 tax year).

Principal Private Residence Relief (PPR) ensures that the gain relating to a period where the property is occupied by the owner is exempt from CGT.  Further periods of relief may be available, depending on the reason for the homeowner’s absence.

The recent 2018 budget targeted these current rules, with changes proposed from 6 April 2020.

Lettings Relief

The current rules allow for up to £40,000 of relief (£80,000 for a couple) if a property has been the owner’s main residence for a period and is then let, equating to up to £22,400 of tax saving in real cash terms.

However, the government is proposing to significantly tighten this relief, allowing a deduction only for periods where the owner and tenant are in shared occupancy – i.e. a period during which the owner should already be entitled to claim PPR relief anyway!

The Final Period

Currently PPR relief is extended for the final 18 months to cover the final period of ownership after the homeowner has vacated the property.

The proposal is to slash this final period to just nine months, which the Government state is ‘twice the length of an average property transaction’.

This change does not affect the relief available for those who move out of their homes and into residential care; the relief in this situation remains at 36 months.

A consultation period in respect of the above proposals will commence shortly, with changes due to come into effect from 6 April 2020. The Government’s rationales for changing the reliefs and further details can be found here:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752071/PRR_web.pdf

 



 
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