At the start of the next tax year in April 2020, there will be some key changes coming into effect regarding Principal Private Residence (PPR) Relief and Lettings Relief, both of which 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 new 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
Think any of the changes will affect you? Read on…
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, you currently don’t pay CGT on the last 18 months before you sell. In the new rules, for property sales after April 2020, the Final Period Exemption time will be reduced to 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
Currently, the recipient spouse or civil partner only inherits the transferring spouse’s ownership history if the property is their main residence at the time of the transfer, even if the period of ownership began before the marriage. This is to maintain a no gain/no loss status on CGT.
However, on property transfers after April 2020, the recipient spouse or civil partner will inherit the ownership history whether the property is their main residence at the time or not.
Currently, when you sell a property that you let out or one that used to be your main residence, you can claim relief of up to £40,000 (£80,000 for married or civil partnered couples) on the disposal gain. The relief made it possible for people to rent out spare rooms without losing the benefits of PPR.
From April 2020, Lettings Relief will be restricted to owners who share occupancy of the property with the tenant, so it will no longer be applied during the time when the owner has moved out of the property. This could cut relief worth up to £11,200 of CGT.
Reporting a property sale
Along with the PPR and lettings relief changes, there will be a new reporting obligation 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 date of filing the return.
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.