Property owners disposing of a dwelling, which at some point of ownership was used as their only or main residence, are currently entitled to claim principal private residence relief (PPR) for the period of ownership as well as the final 18 months regardless of the use of the property. Several changes to PPR relief were announced at the 2018 Budget and will become effective from 6 April 2020, impacting the amount of relief available on disposals on or after this date.
Final period of ownership
One of the changes being implemented is a reduction of the final exemption period from 18 months to nine months, except for property owners with a disability or a resident in care home, who will remain entitled to a final exemption period of 36 months.
The changes are most likely to impact those individuals who no longer live in the old main residence but are unable or are having difficulty selling the property within the shortened final period of nine months. Those individuals could have an unwelcome chargeable gain.
Changes will also be made to the availability of letting relief.
Letting relief currently applies where an individual lets out their only or main residence as residential accommodation for part or all of their period of ownership. On disposal, the individual is entitled to relief at the lower of:
- the amount of PPR relief available
- the chargeable gain arising from the letting
As it currently stands, there is no requirement for the individual to occupy the dwelling whilst they let it out. However, for disposals on or after 6 April 2020, letting relief will only be available for the periods in which the individual has had shared occupancy with their tenants.
In reality, only a small fraction of those currently claiming lettings relief are living in the property during the period of letting, so following the changes from 6 April 2020 the majority of those currently qualifying will no longer be eligible for the relief. There is no apportionment for periods prior to 6 April 2020. Individuals could be losing out on as much as £40,000 of tax relief against property disposals.
In addition to the above changes, the definition of ‘job related accommodation’ will be amended to include those who are serving in the armed forces and, whilst not occupying their home, receive payments from the Ministry of Defence which they use to pay for accommodation.
Given these changes, if you are considering selling your PPR or let property previously used as the PPR, you might want to consider, where commercially possible, bringing forward your plans to maximise the availability of reliefs.
If you require further information on the forthcoming changes or wish to discuss your current position and the availability of reliefs on disposals of your private residence, please contact Sue Stephens or John Elliott on 0151 236 1494.