From 6 April 2020, there will be restrictions to Capital Gains Tax (CGT) reliefs on the sale of a property which has at some stage been an individual’s Principal Private Residence (PPR) and which may have been let during the period of ownership. In addition a provisional capital gains return and payment of CGT will require submission to HMRC within 30 days of completion on all relevant residential property sales.Current Rules
• the pro rata element of the gain relating to the period of occupation is removed from the charge to CGT.
• the final 18 months of ownership is treated as deemed occupation.
• letting relief is available based on the lower of:
- the non-chargeable gain by virtue of the PPR claim, and
• the CGT liability is payable by 31 January following the end of the tax year of disposal.Proposed Changes
• the final period of deemed occupation is reducing from 18 months to 9 months.
• letting Relief will only be available where the owner is in shared occupation with the tenant.
• a provisional return of the capital gain and payment of the CGT liability to HMRC is due within 30 days of completion of the sale.
• there are exceptions for people moving to care homes and those with a disability. Tax Impact
If we assume you have owned a property for 20 years, lived in it for the first 10 years and then moved out and let the property. You are a higher rate taxpayer. The property value has increased by £200,000.
If the property was owned jointly by spouses a further deduction of £40,000 would be available for ‘Letting Relief’ on a pre 6 April 2020 disposal. Tax Planning
If you are considering selling a property in the near future which at some time has been your main residence, you may wish to make the sale before 6 April 2020. As well as the additional tax reliefs available, any CGT liability will not be due until 31 January 2021.
A disposal for CGT will take place on exchange of contracts and not on completion. If it is unlikely that contracts can be exchanged before 6 April we can advise on alternative ways to crystallise the required disposal at an earlier date. Contact us
If you wish to discuss your options please telephone Keron Burroughs on 01502 563921 or by email