Meg Saksida summarises the major changes announced to apply from 6 April 2020 for capital gains tax relief for a taxpayer’s principal private residence.
Selling a main residence prior to April 2020 meant that any capital gains tax (CGT) due on the sale was declared on the self-assessment tax return. This tax return was required to be filed by 31 January in the tax year following the disposal.
For UK residential property owned by overseas residents, the timing of this return changed post 6 April 2015, to being due within 30 days of completion of the sale. These rules are extended to UK residents from 6 April 2020. The 30-day deadline is the reality for all main residence vendors, both resident and non-UK resident, as long as there is tax to pay. If the gain is covered by reliefs or exemptions, the normal reporting time is allowed.
Timing of payment
The timing of the payment of the CGT has also been moved from 31 January in the year following the disposal, to 30 days after completion.
Last 18 months becomes the last nine months
As long as the taxpayer has used the property as their main residence at some point, the last 18 months is a ‘deemed occupation’ period; even if you are not physically living in your main residence, you are treated as residing there for the purposes of the principal private residence (PPR) relief legislation. As such, there is generally no CGT in this period.
The point of the allowance for these final months was to recognise the fact that it is not always possible to move seamlessly from one residence to the next. However, advantage could (and has been) taken by taxpayers, using the fact that one didn’t have to live in the property for the final months, to vacate and delay selling the old residence. This meant they obtained PPR relief on the new residence and PPR relief on the old residence at the same time.
As an anti-avoidance measure (coupled with a revenue-generating exercise), the allowance was reduced from 36 to 18 months in April 2014, and from 6 April 2020 will now be reduced further, to only nine months.
Changes to lettings relief
A very valuable relief (especially for ‘accidental’ landlords), letting relief exempted up to £40,000 of capital gain when a property was let out that had once been the taxpayer’s main residence. The landlord may have had a variety of reasons not to be inhabiting their main residence such as a work transfer to another city or another country.
However, the changes announced for lettings relief mean that post-6 April 2020 it is only available to taxpayers if the landlord shares occupancy with the tenant. For all but a tiny proportion of landlords, this will render lettings relief unavailable.
Changes to spouse and civil partner transfers
Currently, transfers between spouses (or civil partners) of the main residence mean that the donee spouse receives not only the history of the property since they have been married but the total history since the property was owned by the donor spouse.
This rule has now been extended to all property, not just the main residence, so that if one spouse transfers a buy-to-let (for example), the total history of that property would also transfer to the donee spouse.
The implication of this is that if a buy-to-let is transferred ‘spouse to spouse’ on marriage, and the couple live in it together, the PPR relief available for the donee that would have been 100% (since marriage) would be less, as the prior period’s non-residential use will need to be considered too.
Consider carefully all the changes which, when added up, equal a potentially larger CGT liability coupled with a possible cash flow disadvantage.