UK principal residence exemption – further change ahead
The long established ‘principal private residence rules’ allow UK taxpayers to avoid having to pay tax on the sale of their main residence. Unfortunately the benefits of these rules are being gradually whittled away by each successive government.
Broadly the rules grant exemption from capital gains tax for any growth in the value of the property (on a straight line basis from purchase to sale) for periods the individual was actually living in the property, subject to certain exceptions which are now being modified.
The following additional changes are now expected to take effect from 6 April 2020:
- Under current rules, the last 18 months’ ownership of a property is always deemed to be occupied (i.e. not taxed) provided that it was at some point the individuals main residence. From 6 April 2020 the 18 month exemption will be reduced to nine months. A vendor will need to sell their property within nine months of moving out in order to avoid a CGT liability.
- A further relief “lettings relief” allowed a limited exemption from capital gains tax for periods the property was rented out. From 6 April 2020 it will be necessary for the taxpayer to cohabit with the tenant in order for this relief to be available.
- from April 2020 when an individual transfers a house to their spouse, the recipient will always inherit the transferring spouse’s ownership history. Individuals contemplating such transfers should seek advice on whether to do this before or after the new rules take effect.
These changes may impact those planning on disposing of a home which they no longer occupy or has been let during their period of ownership. In these circumstances, serious thought should be given to selling before April 2020 to take advantage of the 18 month final period exemption and the current lettings relief rules.