Private Residence Relief Changes

Whilst most asset sales are subject to Capital Gains Tax (CGT), there has always been one asset that is exempt. That asset is the taxpayer’s home, with gains on a property that has only ever been an individual’s home being entirely exempt from CGT.

Because sometimes people have to move before they can sell their existing home, an additional relief is available. Where a property has been their home at some point during ownership, the last 18 months of ownership are exempt, even if the taxpayer does not live there during that time. This reduced from 36 months a few years ago, an extended period dating back to a particularly difficult time in the property market.

From April 2020, this final period of “deemed” occupation is to be reduced to 9 months. This reduction is being justified by the government’s belief that some people are using this provision to get double relief. Instead of selling their old home immediately they keep it for this deemed occupation period in anticipation of further price rises, whilst getting full relief on their new home as well. The 36-month exempt period for those who are disabled or moving into care homes will continue to apply.

The other relief available on the family home is lettings relief. This exempts the gain related to a property that was the family home but that was rented out for part of the time it was owned. The relief can cover gains up to £40,000, the amount covered depending on how long the property was owned and rented out. From April 2020 this will only apply to gains on part of a home rented out whilst the owner is also in occupation.

Landlords who have properties in their portfolio that were once family homes will want to consider whether to dispose of them before the new rules come in. Properties that have never been occupied by the owner have never been eligible for these reliefs and so will be unaffected.