insideKENT Magazine Issue 96 - March 2020 | Page 175

BUSINESS Principal Private Residence Relief by Steve Jacobs, Partner at Wilkins Kennedy THE 2018 BUDGET CONFIRMED THAT THE GOVERNMENT WAS COMMITTED TO KEEPING FAMILY HOMES OUT OF CAPITAL GAINS TAX (CGT) BY CONTINUING, EVEN EXTENDING, PRINCIPAL PRIVATE RESIDENCE (PPR) RELIEF. However - in reality, two significant limitations to the relief were announced: Disposals made by disabled persons, or persons in care homes, are not affected by this change. This will be compounded by the new, short 30-day timeframe in which to both report the disposal and pay the CGT. • The reduction of the final period exemption to nine months. • A restriction of Lettings Relief to owners in shared occupancy with the tenant. Lettings relief The PPR legislation is currently draft and may therefore change. However, there have been no indications from the Government of any changes. It would be sensible to assume none are forthcoming. Separately, new rules will require UK residents to report disposals of residential property, and pay any associated CGT, within 30 days of completion. These changes, in force from 6 April 2020, will affect all home and residential property owners. Since the announcement there has been a period of consultation, but despite widespread concerns about the impact the changes look set to be introduced unaltered from 6 April. Final period exemption Currently, provided the owner has occupied the property as their main or only residence at some point during their ownership, the final 18 months of ownership qualifies as ‘occupied’ for PPR purposes, attracting full relief. From 6 April 2020, this period shall be reduced to just nine months. The exemption is to provide home-owners with time to sell their main home after moving into a new property. The Government’s view is nine months is adequate to dispose of a property, but in reality local effects on the housing market and other factors, such as relationship breakdown, can lead to significantly longer periods. Currently, Lettings Relief extends PPR relief to owners who, at some point, occupied the property as their main or only residence, but have also wholly or partly let the property. The current relief is particularly valuable since the entire property (or distinct part thereof) can be let without the owner occupying it themselves. On disposal, the part of the gain attributable to the let period attracts relief and can exempt gains of up to £40,000 per taxpayer; effectively lowering CGT by up to £11,200 per taxpayer. This is per person and joint homeowners can enjoy double the benefit. From 6 April 2020, Lettings Relief will only be available for those periods when the property has been let where the owner occupied the property as their main residence throughout that time. In other words, relief will only be available if the homeowner and tenant have been living in the property at the same time. What should you do? We recommend all home and property owners review their own position and the impact of the changes. Where appropriate, action could be taken to accelerate a disposal or otherwise crystallise a gain to secure the current levels of relief before 6 April 2020. To discuss any of the above points, please get in touch: [email protected] Local offices: Ashford: 01233 629 255 / Canterbury: 01227 454 861 Maidstone: 01622 690 666 / Orpington: 01689 827 505 Sandwich: 01304 249 997 This change is significant, severely reducing availability of the relief to a very small number of homeowners. In addition, there are no transitional rules and many homeowners will find that properties attracting relief if sold on or before 5 April 2020 will no longer attract relief if sold from 6 April 2020. Summary The severity of these changes cannot be underestimated. Many property sellers could now have a CGT liability which they did not expect, or one greater than budgeted for. [email protected] www.wilkinskennedy.com wilkinskennedy 175