Private Residence Relief – Changes from 6 April 2020

Private Residence Relief (PRR) is designed to keep out of Capital Gains Tax (CGT) those gains or losses that arise when a person sells or otherwise disposes of a dwelling that has been used as their only or main residence.

In the 2018 budget, the government announced the following changes:

• the final period exemption will be reduced from 18 months to 9 months, although the special rules that give those with a disability, and those in care, an exemption of 36 months will not change
• lettings relief will be reformed so that it only applies where an owner is in shared occupancy with a tenant

Final period exemption

The final period exemption exempts from CGT the final 18 months of ownership of any dwelling that is or has in the past been a person’s main residence. The intention of the exemption is to give people a CGT free period in which to sell a dwelling after leaving it.

However, the longer the exemption period, the more PRR can be accrued on two dwellings (an un-sold old one and a new one) simultaneously.

From 6 April 2020, the final period exemption will be reduced from 18 months to 9 months to better target the exemption at owner-occupiers with one main dwelling, rather than those who may have lived in the dwelling as their main residence in the past and have subsequently bought another home they are eligible for PRR on.

Lettings relief

The reform to lettings relief announced at Budget 2018 will limit the availability of lettings relief and restrict it to those who share occupation of their house with a tenant for all disposals made on or after 6 April 2020.

What is shared occupation?

Shared occupation is considered to apply where the owner is residing in the same dwelling with the tenant and continues to occupy that dwelling as his/her only or main home throughout the period of the letting.

The reformed lettings relief will not be available for those periods where an owner has moved out of the property and therefore no longer shares occupation with a tenant or tenants.

Changes are not retrospective

The reduced final period exemption will come into effect for any disposals from the 6 April 2020.

The reforms to lettings relief will apply to all disposals made from 6 April 2020. From that date, only those periods where the owner was, or is, in shared occupancy with the tenant will qualify for lettings relief

Other Proposed Changes

Job-related accommodation – This proposal will help ensure that personnel who rent privately under the FAM will continue to receive job-related accommodation relief on their only or main residence they own elsewhere in the UK.

Inter-spouse transfers – Currently when a property is transferred from one spouse to another, the receiving spouse will only qualify for full PPR and letting relief if the property was the main residence at the time of transfer. When the property was not the main residence there are occasions whereby there is a loss of PPR.

The government is considering a proposal where the receiving spouse should always inherit the transferring spouse’s period of ownership and the use to which the property was put during that time.

Our Advice?

If you are thinking of selling a property that has been your private residence at some point consider whether you should bring this sale forward to before April 2020.

For more information on Private Residence Relief get in contact!

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