PPR is a relief that enables taxpayers to sell their homes without having to pay Capital Gains Tax (CGT). To be able to claim PPR, the property in question must be the taxpayer’s main residence. If a taxpayer sells their home, and it was not their main residence for the whole time they owned it, CGT may be due on the period in which it wasn’t their main residence.
There are two major changes to the rules – the first is the final period of exemption. Currently, individuals do not have to pay CGT on any gains made during the final 18 months of ownership, irrespective of whether they were living there or not. However, from 6 April this will be halved from 18 months to nine months, marking the second time we have seen such a reduction; the last time was the change from 36 months down to 18 in 2014 (but there are no changes to the 36 months that are available to disabled people or individuals who have moved to a care home).
The second change is to Lettings Relief. Currently, Lettings Relief provides up to £40,000 of relief (£80,000 for a couple) to owners who let out a property that is or has been in the past, their main residence.
When it was introduced, the aim of this relief was to enable people to rent out their spare rooms easily. However, it’s since been used for relief in cases where a whole property is let out (provided the property was at some point the owner’s main residence). So, to stop this, from 6 April 2020 this rule will be reformed so that relief only applies where the owner of the property is in ‘shared-occupancy’ with a tenant.
The majority of Lettings Relief claims made on properties that have been an individual’s PPR at some point during their ownership but have also been let out will likely be impacted by this change and be liable for CGT when they previously would be covered by the relief.
Alongside these changes, HMRC is also introducing new reporting requirements which means that any CGT liabilities as a result of the sale of a UK residential property will need to be both reported to HMRC and paid within 30 days of completion. This applies to individuals, trustees and personal representatives.
If the liability is covered by the annual exemption or relief, it will not need to be reported within the 30-day deadline, but given the changes, there may be many more cases that will need to be reported as more sales will now be subject to CGT.
This new, shorter deadline is a fairly radical change when you consider that the previous reporting requirements of disposals were that it needed to be declared on the tax return after the end of the tax year. However, it’s not a completely new concept, as it has been in place for non-UK residents since 6 April 2015.
So anyone looking to sell a residential UK property – or already in the process of doing so – should contact an expert to understand if the sale will give rise to a tax liability or reporting requirement and if it does, to ensure that the 30-day deadline is met.
We’d advise anyone that may be impacted to check their position as soon as possible to ensure there’s enough time to take the appropriate actions.
Nicola Allen - Old Mill
