The ATT is concerned that a proposed rule change will result in an unwelcome tax charge for home owners who are struggling to sell their property and have to move out before they can sell.
The ATT’s concerns are set out in a response to a recent HMRC consultation which proposes to restrict the availability of private residence relief (PRR) for home owners by cutting the final exemption period from 18 months to nine months from April 2020.1 The aim is to counteract a perceived exploitation of the rules where individuals with more than one home can receive a final exemption period on both properties.
PRR exempts gains made on property from capital gains tax (CGT) for the period(s) that the property was (or is deemed to have been) the individual’s only or main residence. If a property has been an individual’s only or main residence at any point during their ownership, they are entitled under current rules to PRR for the last 18 months whether or not they occupy the property in that time.
Jon Stride, Co-Chair of the ATT’s Technical Steering Group, said:
“The purpose of the final period of exemption is to allow individuals a period of grace in which to sell their main home without incurring CGT even if they have to leave the property before exchanging on a sale.
“While in the majority of cases people are only able to purchase their next home when their current property has been sold, there are a number of circumstances such as separation, relocation for work, family or health reasons which may force an individual to move out of their home before they are able to sell.
“We are concerned that, with the current economic uncertainty, the reduction to nine months could harm taxpayers who need to relocate while they are still struggling to sell their original home. It is difficult to see that a nine-month period is sufficient time, or that April 2020 is an appropriate time to introduce any reduction.
“Rather than reduce the final exemption period from 18 to nine months, we suggest that targeted measures should be introduced to restrict the ability of those with more than one home to claim relief on the final period of ownership for both properties.”
The proposed shortening of the final period is due to occur at the same time as a separate change which has already been legislated for. From April 2020, UK resident individuals who sell any residential property where CGT arises will have to both report the disposal and make a payment on account of the tax within 30 days of completion.
Jon Stride continued:
“The reduction of the final exemption period to nine months will increase the probability of a homeowner incurring CGT on disposal. The new requirement to report the disposal and pay any CGT within 30 days of completion will require the homeowner to be in a position to report and pay that CGT very quickly. Home owners who are unaware of the changes from April 2020 and who fail to report and pay the tax promptly could be subject to penalties.”