An announcement in last autumn’s budget, currently subject to consultation on the details, will result in more people paying CGT when they sell. There are 2 main changes:
A reduction in the final period exemption
A restriction to lettings relief
The consultation document proposes some other minor changes. This includes an extension of job-related accommodation for military service personnel, even if the accommodation is provided by a private landlord rather than the MOD. It also proposes a change to the rules on spouse/ civil partner transfers, so the transferee spouse will now inherit not only the transferor’s period of ownership, but also the use to which the property was put at that time. The current main criteria for relief are:
The property has been occupied throughout your period of ownership as your main residence
Garden and grounds don't exceed half a hectare (broadly 1 acre) unless the property is large and satisfies other conditions.
No part has been used exclusively for business purposes (including letting)
Spouses/civil partners can only have one main residence between them
The property was bought with the intention of it being your main residence rather than to gain a profit on sale.
What is the change to the final period exemption?
Currently, the last 18 months of ownership of a property that has been your main residence, at some point in your period of ownership, qualifies for relief even if you’ve moved out. It’s proposed that the period qualifying for relief will be reduced to 9 months. The current extension of that period to 36 months for the disabled or those moving into a care home isn’t affected.
Subject to this final period exemption, where the property was a main residence for just part of the period of ownership, only the proportion of the gain for which it was the main residence will be exempt.
There are valuable rules allowing choice as to which of two or more residences is to be treated as the main residence for this purpose, within two years of first having or changing any combination of 2 or more residences. Specialist advice should be consulted in these circumstances.
What’s the change to the lettings exemption?
The residential lettings exemption can currently be claimed for a period when the property is let up to a maximum of £40,000 of gain. At the moment, the normal situation covered by the exemption is when the owners have moved out and let the property. The proposed change is for the lettings exemption to only cover situations where the owner is in shared occupation with the tenant, i.e. a form of rent a room relief. The letting of the whole property to a tenant won’t qualify for the exemption anymore.
When do these changes come in?
Both these changes apply to disposals after 5 April 2020, with no transitional relief for periods prior to that date. This is also the date from when CGT on disposals of land will have to be paid within 30 days.
In the past, the two exemptions have frequently covered gains on a property where the owner has moved out and let the property for the short to medium term. These proposed changes mean that it’s highly likely that there'll be a gain in that situation in the future.
There are other exemptions and reliefs that could be claimed that might reduce the gain, or mean that no tax is payable. The draft legislation confirming these proposed changes is unlikely to be seen until much later this year, but given the length of time it can take to sell a property, early specialist advice should be sought by anyone who wants to sell a property that they’ve not lived in throughout the time they’ve owned it.
Published: August 2019
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