At McDade Roberts we help a wide range of clients with property tax issues so we are always watching changes to taxation legislation. A recent change that is having an impact is the change to private residence relief.
If you make a financial gain from selling your home, it is exempt from capital gains tax because of private residence relief (PRR). One current feature of PRR is that the last 18 months of ownership are always CGT free, regardless of whether you are living in the property or not. You could therefore move into a new home before selling your old one without losing any PRR. The Chancellors 2018 Budget however included two important changes to the PRR rules.
Private Residence Relief Rule Changes in the 2018 Budget
- The 2018 Budget reduces PRR for the final period of ownership by half, down to nine months instead of 18. This will come into effect from April 2020. If you buy a new home, move out and your original property does not sell within nine months, you could therefore face a CGT bill when you finally do find a buyer.
- Currently, if you let your home PRR includes a bonus in the shape of an extra relief which can reduce the taxable amount of any capital gain you make from selling your home by up to a maximum of £40,000. The Chancellor has decided that this “letting relief” is to be withdrawn from April 2020 unless you occupy part of your home or share it while letting it.
- If you’ve occupied a house as your main residence for a while, but you’ve also lived somewhere else, the Budget raises the chance of a CGT bill. In future when you sell your home you’ll need to consider the CGT position if you’ve been absent from your home for one or more extended periods during your ownership. Some absences are ignored but this might only apply if you re-occupy your home after the absence.
- In an obvious attack on landlords, the Chancellor also confirmed that from April 2020, anyone who makes a capital gain from selling residential property which is not covered by an exemption or relief will have to declare and pay an estimate of the CGT within the following 30 days.
Special rules currently allow PRR for the final 36 months of ownership if you’re in, or moving into, a care home or have a disability. This won’t change as a result of the Budget.
Capital Gains Tax Exemption
It is not all bad news. If you are hit by this change to PRR, a Capital Gains Tax bill may not follow. Your annual CGT exemption, £12,000 from 6 April 2019 still exists if you haven’t used it against other gains and therefore reduces the taxable amount owed. If you own the property that is subject to PRR in joint names, you can also use both your annual exemptions to reduce the tax further.
Need Help Working Out Private Residence Relief?
Don’t worry. We know how PRR works so that you don’t have to keep on top of all the changes yourself. If you would like a free chat to discuss your tax situation with the experts at McDade Roberts, just contact us.