Capital Gains Tax:

Owners of second homes and buy-to-lets that they have previously lived in should be aware that as from April 2020 the tax relief period allowed against capital against tax (CGT) will be reduced.

As it is a present, when you sell a property that has been your main home in the past, the last 18 months of ownership will qualify for tax relief as if you occupied it, under principal private residence (PPR) relief.

However, and this is critical if you intend to dispose of a buy-to-let investment, or if you are in the process of doing so, as from April 2020 the 18 months relief period will be lost unless you are sharing occupancy of the home with the tenant(s) under the same roof.

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Home owners, when buying a new home before selling the old one, can be caught in this – it means the window for selling to avoid any CGT liability will be just 9 months come April – a rather tight selling schedule in a slow housing market, and a huge risk of losses if there is a considerable gain.

Given all the upheaval in government over recent months it is perhaps understandable that there’s a whole raft of proposed tax legislation still literally in draft form, and yet it is all still slated to come into effect from April, despite that fact it will have to be rushed through.

With a new Conservative government now in place, and a new budget due this spring, people will no doubt be wondering about the direction Boris Johnson’s new government will take on matters like these, but it is thought that tax measures already planned are most likely to remain.

The principal private residence (PPR) relief is a valuable concession which means that ordinarily when a main residence is sold there is no CGT to pay on any gain. The letting relief is an extension of this for landlords and second home owners who previously lived in the property.

The relief currently provides up to £40,000 of exemption (£80,000 for a couple with joint ownership) for those who let a property that had previously been their main residence. The lettings relief is the lower of the PPR relief amount, the lettings chargeable gain amount, or £40,000

Given the current economic climate these new rules seem harsh, and there will be no phasing in. What’s more, for those selling after April, an online tax return must be made within 30 days and any CGT due paid straight away.

Furthermore, which seems harsh for landlords, after April it is proposed that the lettings relief will only apply where the owner is sharing occupancy of the home with the tenant(s) under the same roof.

So no longer is it likely to be wise to let-out a main home when owners need to move, but when their former residence is proving difficult to sell, unless they are willing to share with a tenant or lodger.

It is expected that these proposed changes will result in significant increases in CGT payable on the sale of a properties after 5th April 2020, and the tax will have to be paid almost immediately, creating cash-flow problems for some people.

Capital Gains Tax: Private Residence Relief: changes to the ancillary reliefs

Tax when you sell your home

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