Private Residence Relief changes

The government has published draft legislation for the next Finance Bill which includes draft clauses on the changes to Private Residence Relief (PRR). The draft legislation is subject to consultation which closes on 5 September 2019.

Following consultation this Spring, changes are proposed to the Private Residence Relief (PRR) regime from April 2020. For properties that have not been occupied throughout the period of ownership, available deductions for capital gains tax purposes will be limited as follows:

  • the final period exemption will be reduced from 18 months to 9 months (there are no changes to the 36 months that are available to disabled persons or those in a care home) and
  • lettings relief will be reformed so that it only applies in those circumstances where the owner of the property is in shared-occupancy with a tenant. Letting relief will be restricted or curtailed for disposals on or after 6 April 2020, regardless of when the period of letting took place.

Many home owners are still unaware that the final period exemption was reduced from 36 months to 18 months in 2014. A further reduction to just nine months is likely to bring more property disposals within the scope of CGT. Whilst the average time to sell a property is around four and a half months, there will be many exceptions due to regional variations, separation and divorce, and other complexities.

Also, the changes to lettings relief from 6th April 2020 will limit the availability of the relief to narrowly defined circumstances, where the owner shares occupation of their house with a tenant.  The effect of these changes will be that a large number of sellers, who would qualify for lettings relief under the current rules, will no longer qualify in the future. No apportionment can be made between gains attributable to pre and post 6 April 2020 disposals. so, any ‘accrued’ letting relief will be lost.

Internet links: GOV.UK changes to CGT ancillary reliefs CIOT press release