Graham Buckell, Tax Partner at Bates Weston, explains the changes made to Principal Private Residence Relief (PPR) in the budget. “In his Budget speech, the Chancellor announced two changes to principal private residence relief. Both are due to come into effect from April 2020. A consultation is planned so there may be some adjustments. The first is to reduce the exemption for the final period of ownership from 18 months to 9 months. This rule is intended to help those who need to move, perhaps for work reasons, but have trouble selling their house. The original period was 12 months before being increased to 36 months many years ago when selling houses was difficult. It took a long time to drop it to 18 months (April 2014) and now 9 months seems a little mean, especially if the housing market turns sour again. Note that the 36 month period remains in effect for those who are disabled or who have moved into a care home. The second is to limit letting relief to periods when the owner remains in occupation of the property. The relief is for periods when a property is let out but limited to the lower of the amount attributed to actual occupation (but inclusive of the final period – see above) and £40,000 per owner. This will hit quite a number of people. It is not unusual for people to move elsewhere and let their old residence rather than sell it. This period of absence will now be taxable in full in most cases apart from the final 9 months. The new relief will be available only in a very limited number of cases, e.g. bed and breakfast establishments where the owner lives on site. Where there is casual letting to lodgers, relief was generally not restricted anyway if it could be argued that no part of the house was exclusively let to third parties. Arguably the old letting relief was too generous. Under the existing rules a person could own a rental property which falls vacant, move in to occupy as a residence, sell it and then claim 3 years’ worth of relief (final 18 months plus letting relief). Under the new rules in this scenario they get no letting relief and thus only 9 months’ worth as the final period.” If you are affected by this issue and would like our help, please do get in touch.