If you sell the home in which you live there is normally no Capital Gains Tax (‘CGT’) to pay on any increase in the value of the property during your ownership as you can claim Principal Private Residence relief (‘PPR’).
Where you have moved out of the property but retain ownership, you can still claim PPR when you come to sell for the periods during which you lived there.
Furthermore, you can claim additional relief for the last 18 months of your ownership, even if you were not living there at the time, known as final period exemption.
Lastly, if you have let the property, you can claim lettings relief of up to £40,000.00 (£80,000.00 per couple) to set off against any capital gains arising on sale.
The combination of these reliefs can reduce potential CGT bills on sale to little or nothing.
Two technical changes announced by the Chancellor in his 2018 Autumn Budget Statement will significantly reduce the benefit of these reliefs from April 2020.
In the case of final period exemption, it will apply only to the last 9 months and not 18 months.
In the case of lettings relief, it will apply only if the owner is sharing occupation with a tenant – effectively ending this relief in most cases.
Her Majesty’s Revenue & Customs website gives an example of the impact of the changes on an owner selling his property and generating £120,000.00 of capital gains. At present his tax bill would be £1,400.00. From April 2020 it will be £14,700.00. This example is not unrealistic where you have a lengthy period of ownership as property values have risen significantly over the last decade notwithstanding the financial crash.
If you are an owner likely to be caught by these changes you should consider your options now and plan accordingly.
If you would like any advice in relation to the matters raised in this article or relating to buy-to-let or furnished holiday lettings please contact Glyn Evans on 01934 637911 or evans@powellslaw.com
