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
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