Capital Gains Tax – Residential Property – Budget 2018.

In his final scheduled Budget before Brexit, the Chancellor Philip Hammond announced a couple of unexpected changes to the capital gains tax regime and reliefs which are currently available to owners of residential property which was once their main residence.

The changes which are due to come into effect from 6 April 2020 will have an impact on the capital gains tax liability at the time the property is eventually sold.

The changes relates to:

  • Final period of exemption.
  • Lettings relief

Final period of exemption on the sale of the main residence

Ordinarily, the sale of an individual’s only or main home is exempt from capital gains tax, however, there are times when it may not be possible after a homeowner has moved out of their home to sell it. The idea behind the final period of exemption was to protect the homeowner from a possible capital gains tax charge for the period that they were not living in the property.

At the moment the final period of exemption or period of deemed occupation is 18 months and this means that if the homeowner sells their property within eighteen months of moving out then they will not be subject to capital gains tax on the disposal of their main home.

The proposal is to reduce the final period of exemption from 18 months to 9 months.

The proposal will not affect those who are currently living in or are about to move into a residential care home and disabled home owners as the current period of exemption of 36 months will remain.

Lettings relief

Currently, if you are letting your property which you once lived in as your main residence then at the time you come to sell it, it is possible to claim lettings relief. Lettings relief along with principal private residence relief can reduce a potential capital gain on the sale of your property.

At the moment, lettings relief can cover capital gains of up to £40,000 (£80,000 where a property is owned in joint names), however, there are restrictions in place which can cap the actual amount of lettings relief available.

The proposal is to restrict the availability of the relief so that homeowners can only claim it when they are sharing the property with the tenant. In effect, the availability of lettings relief will be abolished from 6 April 2020.

Even though the changes are due to come into effect from 6 April 2020, they are subject to a consultation first.

If you are thinking of selling a residential property which was once your main home before 6 April 2020 in order to claim the relief, it is important that you seek advice first as it is important not to let the “tax tail” wag the commercial dog.

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Author: Anthony Barron, Tax Manager, Plus Accounting

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