Private Residence Relief is changing from April 2020. Richard Coombs explains the changes and the implications for Capital Gains Tax.
“As a further squeeze on taxpayers, HMRC have recently announced a further tightening on the Private Residence Relief (PRR), more generally known as Principal Private Residence relief.
By way of summary, PRR is what makes the sale of your home tax free. Without it any gain would be subject to capital gains tax (CGT). For the vast majority of people the change will make no difference, but significant numbers will still be affected.
What is changing?
There are two main changes and they apply to people who no longer reside in the house when it is sold, so it could affect people who have struggled to sell their home but have bought a new house and moved in or people who have decided to let out their previous home rather than sell it.
Previously, HMRC treated the last 18 months of ownership of a home as being occupied by the owner, irrespective of whether it actually was or not. This meant that provided the house was sold within 18 months of vacating it, no CGT would arise. After consultation this period has been reduced to 9 months. This will therefore affect people who move out of their house and can’t sell it within 9 months of moving.
The other change is to a similar relief called lettings relief. This gave additional relief from CGT if, having previously lived in a property, you let it out. HMRC have now more or less scrapped this relief and from April 2020 it will only apply if you let the property to a lodger within your home. As such, it will rarely apply.
Both of these changes apply to disposals made after 6 April 2020 and therefore there is a real incentive to sell a currently empty property before that date in order to fall under the old rules.”
The tax implications of selling residential property can be complex. We advise on the availability and extent of PRR as a valuable Capital Gains Tax relief. If you need our help, please do get in touch with Richard.