Capital Gains Tax: Private Residence Relief and Letting Relief Changes

17 July 2019

Draft legislation to be included in the next Finance Bill will make important changes to the calculation of Capital Gains Tax (CGT) Private Residence Relief. As announced in the Autumn 2018 Budget there will be a reduction in the final period exemption to just 9 months and stricter conditions for letting relief to apply.

Currently where a property has been the taxpayer’s main residence, the last 18 months of ownership counts as a period of deemed occupation. This will be reduced to just 9 months for disposals on or after 6 April 2020. It is understood that this is being introduced to counteract “second home flipping” allegedly used by MPs when they sell their London residences.

Capital Gains Tax Letting Relief Restriction

Currently Letting Relief provides up to a £40,000 deduction in computing the capital gain on the disposal of a property that was at some time the taxpayer’s main residence. The relief is the lessor of £40,000, the gain attributable to the let period, and the amount of Private Residence Relief. For a couple, this could potentially exempt up to £80,000 of the gain from CGT.

The draft legislation will limit this relief so that its only available in those cases where the owner remains in shared occupancy with the tenant, i.e. has lodgers living in the house.

What does this mean for you?

If you were hoping to take advantage of Letting relief on the sale of a property, you might want to consider disposing of the property before 6 April 2020 to take advantage of the current rules.

Contact Ann Bibby on abibby@ellacotts.co.uk or 01295 250401 for advice in this area as we can estimate the additional tax that might be due following the withdrawal of this generous relief.

For more information about the tax implications of being a landlord please read our brochure.