Possible changes to capital gains tax (CGT) private residence relief

The government has been consulting on important changes to private residence relief that are likely to be introduced from 6 April 2020. The consultation closed on 1 June 2019 and the government is currently analysing the feedback that they have received.

The two possible changes, announced in the Autumn 2018 Budget are:

1. To limit the period prior to disposal that counts as a period of deemed occupation to 9 months
2. To limit “letting relief” to periods where the taxpayer is in shared occupation with the tenant.

Final period of deemed occupation exemption to be reduced

For a long time the final period of deemed occupation exemption was thirty six months and was originally intended cover situations where the taxpayer was “bridging” and waiting to sell their previous residence. However, thirty six months was felt to be too generous and was allegedly being abused by a strategy known as “second home flipping”.  As a result the final period of deemed occupation relief was restricted to the current 18 month period with effect from April 2014.

The latest proposal is to restrict this still further to 9 months, although it will remain at 36 months for those with a disability and those in or moving into care.

Possible Lettings relief changes

Lettings relief currently provides a further exemption for capital gains of up to £40,000 per property owner. The additional relief was introduced in 1980 to ensure people could let out spare rooms within their property on a casual basis without losing the benefit of Principal Private Residence Relief, for example, in a situation where there are a number of lodgers sharing the property with the owner.

In practice Lettings relief extends much further than the original policy intention and also benefits those who let out a whole dwelling that has at some stage been their main residence. It is these situations that the government appear to be attacking under the proposed changes.

Note that those who are renting their property temporarily whilst working elsewhere in the UK or working abroad are unlikely to be affected by this change as there are alternative reliefs available under those circumstances.

Please check with us if you are likely to be affected by the proposed changes. as it may be worth considering disposing of the property before the new rules are introduced from 6 April 2020.

Photo by Kirsten Drew on Unsplash