From 6th April 2020, the start of the 2020/21 tax year, major changes in Principal Private Residence (PPR) Relief and Lettings Relief came into force. Both of these reliefs can lessen the impact of Capital Gains Tax (CGT) on property disposals.
PPR Relief rules are intended to make sure that, under some conditions, a residential home sale is exempt from CGT. The recent changes cover:
- The Final Period Exemption length
- The transfer of property between spouses and civil partners
- The availability of lettings relief
- The requirement to report a residential property sale
So if you’re planning on disposing of a property, you’ll need to factor in these important CGT rule changes.
Principal Private Residence Relief
PPR is a relief from CGT on the sale of a person’s main home. Even if the property was only a main residence for part of the ownership, in the latest rules, the Final Period Exemption (which provides relief for the final period of ownership, even if it was not actually the main residence at that time) is reduced from the last 18 months to the last 9 months of ownership.
If you’re buying a new home before selling your old one, ensure that the sale of the old property takes place within nine months to avoid a potential CGT charge. There are separate rules for people moving to care homes and people with a disability that still provide 36 months’ relief and this is not affected by the changes.
Property transfer between spouses
Previously, the recipient spouse or civil partner only inherited the transferring spouse’s ownership history if the property was their main residence at the time of the transfer, even if the period of ownership began before the marriage. On property transfers after April 2020, the recipient spouse or civil partner inherits the ownership history whether the property was their main residence at the time or not. In the vast majority of cases, this element of the changes will result in a lower overall tax burden.
When selling a property that you let out or one that used to be your main residence, before 6th April, you could claim relief of up to £40,000 (£80,000 for couples) on the disposal gain. The relief made it possible for people to rent out their whole house for part of the ownership period without losing the benefits of PPR.
From April 2020, Lettings Relief is restricted to owners who share occupancy of the property with the tenant, so it no longer applies during the time when the owner has moved out of the property. This could cut relief worth up to £11,200 of CGT (or £22,400 for a couple).
Reporting a property sale
Along with the PPR and lettings relief changes, there are new reporting obligations from April 2020 covering all UK residential property sales, including investment properties and where the sale is not fully covered by PPR. The return must be submitted within 30 days of completion of the sale and if any tax is chargeable, this is also due to be paid on account on the same date.
A key point to remember is that it is the date of exchange of contracts rather than completion, which is the trigger date for CGT, so if you exchanged contracts pre 6th April 2020, the disposal calculations and reporting will fall under the old rules.
As with all tax implications, the devil is in the detail, so seek the advice of tax accountancy experts like CRM for further assistance if you’re planning to sell or transfer a property in the coming months. The team at CRM will happily discuss your requirements on 01865 379272.