Two changes to the way Private Residence Relief works are due to come into effect from April 2020. These changes could reduce the amount of CGT relief available on the sale of a private residence. The government has said that the measures are being introduced to better focus Private Residence Relief at owner-occupiers and the changes will mostly affect home owners who let out their home, or part of their home at some time.
The current private residence rules and forthcoming changes
Currently, if a property has been occupied at any time as an individual’s private residence, the last 18 months of ownership are disregarded for CGT purposes. This relief applies even if the individual was not living in the property when it was sold. From April 2020, this final exempt period will be reduced from 18 months to 9 months.
The intention of this relief was to protect those who had difficulty selling their original home after purchasing a new home. However, the long exemption period allows all qualifying home owners to accrue CGT reliefs on two properties at the same time. The government is concerned that this relief is being used by some homeowners / landlords who intentionally hold on to a property they have lived in to benefit from the CGT reliefs available.
There will be no change to the 36 months exempt period available for those that are disabled or moving into care homes.
Home owners that presently let all or part of their house may not benefit from the full private residence relief but can benefit from letting relief of up to £40,000 (£80,000 for a couple). The relief is not available on a 'buy to let' property in which the owner has never lived.
From April 2020, lettings relief will be reformed. The change will mean that lettings relief will only be available to those property owners who are in shared occupancy with a tenant.
Are you considering a property sale?
If you have two properties on which you can take advantage of Private Residence Relief then it might be time to consider your options and look to possibly sell one of these properties before April 2020.
Also, it is important to note that these changes from April 2020 do not affect landlords who have never lived in a rented property.