Capital Gains Tax and Private House Relief

Omagh-based accountant Seamus McCaffrey
Omagh-based accountant Seamus McCaffrey

In July 2019 the government published some draft finance bill 2019-20 clauses including two restrictions to the Capital Gains Tax relief on disposal of an individual’s Principal Private Residence. These proposals are to be effective for disposals on or after the 6 April 2020, writes Omagh based accountant Seamus McCaffrey.

The first proposal relates to the reduction of exemption for the final period of ownership of the Principal Private Residence. Currently, where an individual disposes of a property that has been their Principal Private Residence for only part of their period of ownership, the last eighteen months of ownership is always deemed a period of qualifying occupation for the purposes of the relief, except for individuals who are disabled or are in or moving into a care home, when a 36 month final period applies.

It is proposed that the eighteen-month period will be reduced to the last nine months of ownership for property disposals after 5 April 2020. This reduction means that from 6 April 2020, most individuals buying a new home before selling their old one will need to ensure that a sale of the old property takes place within nine months to avoid a potential Capital Gains Tax charge. The reduction to the final period exemption for eighteen months to nine months can result in a significant increase in the Capital Gain Tax payable on the sale of a main home.

The second proposal relates to a restriction to lettings relief to shared occupation. Currently, letting relief is available where a property is let, provided that at some point during the ownership it qualified for Principal Private Residence Relief. A time apportionment calculation is made over, the whole period of ownership. Relief for the letting period is the lowest of the Principal Private Residence Relief claimed, the gain arising by reason of the letting or £40,000.

The second proposed restriction from 6 April 2020, is that the lettings relief will only be available where the owner is in shared occupation with the tenant(s). If the owner is not living in the property, no relief will be available beyond the period for which the property qualifies for Principal Private Residence Relief.

It is important to note that for disposals after 5 April 2020, periods that would have qualified for lettings relief before that date will no longer be eligible for lettings relief once the new rules come into effect.

This may result in an unexpected Capital Gains Tax charge arising for home sellers who had let their whole property to tenants a long time ago, when lettings relief would have been available.

The reforms to the lettings and principal private Residence Relief rules can create significant increases in Capital Gains Tax payable on the sale of a Principal Private Residence on or after 6 April 2020. If a sale is contemplated, consultation with the accountant is required.

For further information, telephone 028 8224 1515.