Capital Gains Tax (CGT) Private Residence Relief Changes

Draft legislation to be included in the next Finance Bill will make important changes to the calculation of CGT private residence relief. As announced in the Autumn 2018 Budget, there will be a reduction in the final period exemption to just 9 months and stricter conditions for letting relief.

Currently, where a property has been the taxpayer’s main residence, the last 18 months of ownership counts as a period of deemed occupation. This will be reduced to just 9 months for disposals on or after 6 April 2020. It is understood that this is being introduced to counteract “second home flipping” allegedly used by MPs when they sell their London residences.

CGT Letting Relief Restriction

Currently letting relief provides up to a £40,000 deduction in calculating the capital gain on the disposal of a property that was at some time the taxpayer’s main residence. Letting relief is the lower of £40,000, the gain attributable to the let period, and the amount of private residence relief. At the moment, for a couple, this could potentially exempt up to £80,000 of a gain from CGT.

The draft legislation will limit letting relief to those situations where the owner remains in shared occupancy with the tenant, i.e. has lodgers living in the house.

If you are hoping to take advantage of letting relief and the longer final period of exemption on the sale of a residential property, you may want to consider disposing of the property before 6 April 2020 to take advantage of the current rules.

Please contact us for advice in this area as we can estimate the additional tax that might be due as a result of these proposed changes.

Photo by Ritchie Valens on Unsplash