The Government has published draft provisions changing a few key aspects of principal private residence relief (PPR) and lettings relief. These provisions are an extension to the announcements already made in Budget 2018, and also include new measures which legislates two existing extra statutory concessions (ESC) as well as clarifying the rules on the transfer of residential properties between spouses or civil partners.
Private residence relief
PPR is a relief from Capital Gains Tax (CGT) on the sale of an individual’s main home. Where an individual is selling a property that has been their main home for only part of the period of ownership, the last 18 months of ownership is always deemed a period of qualifying occupation for purposes of the relief. The draft provisions proposes that this period will be reduced to the last nine months of ownership for property disposals after 6 April 2020.
This reduction means that from 6 April 2020, individuals buying a new home, before selling their old one, will need to ensure a sale of the old property takes place within nine months to avoid a potential CGT charge.
This relief applies where an individual sells a property that has been their main home and which has also been let out for a time. Currently, in such a situation, letting relief can exempt up to £40,000 of any gain on disposal. The draft provisions restrict the availability of lettings relief: from 6 April 2020, it will only apply in situations where the owner of the property is in shared occupancy with the tenant.
As a result of the draft provisions, the relief (currently worth up to £11,200 of CGT), would be lost unless the individual selling the property lived in the home at the time it was let out.
Extra statutory concessions
In some situations where an individual owns more than one private residence, the individual can nominate which property should be treated as their main residence for PPR purposes. ESC D21 allows for a late nomination of a main residence outside of the normal two-year window, provided that the individual has not made a nomination previously and all but one of their residences has a negligible capital value (for example, is a weekly rented flat).
ESC D49 allows PPR where there is a short delay in occupation of a residential property, provided that the period between acquisition and occupation as main residence does not exceed two years and no other person has used the property as a residence during that time.
Draft provisions will ensure that both these concessions are incorporated into UK statute.
Transfers between spouses and civil partners
The final change is to the way in which the spousal transfer rules apply. Currently, the recipient spouse or civil partner only inherits the transferring spouse’s ownership history if the property is their main residence at the time of the transfer. The new rules alter this treatment, so that where the transfer takes place from 6 April 2020, the recipient will inherit their spouse’s ownership history regardless of whether the property is their main residence at that time. However, the new rules will not apply to transfers before that date.
Back to Draft Finance Bill 2019/20