Measure
The Chancellor announced two changes to restrict private residence relief (PRR), the relief exempting gains realised on the disposal of a taxpayer’s main residence from capital gains tax (CGT).
Currently, the period relating to the final 18 months of ownership of a property which has been a taxpayer’s main residence at some point in the past is exempt from CGT. The logic is that this will cover a period in which the homeowner has moved home but not yet sold their old property. This exemption will be cut to nine months. This follows a previous reduction in the final period exemption from 36 months to 18, effective April 2014.
The second change is to ‘lettings relief’, which currently exempts from CGT gains accruing in a period when the main residence is let out up to a maximum of £40,000. This relief will now be restricted to apply only to periods where the owner jointly occupies the property.
These changes will affect homeowners who have not been in continuous occupation of their main residence, potentially restricting the relief available to them under PRR.
In particular, homeowners who are compelled to relocate and struggle to sell their property are more likely to face a potential CGT charge.
These restrictions will be effective from 6 April 2020.
As noted by the Chancellor in his Budget speech, these restrictions will target the relief more specifically to owner-occupiers.
The impact of these changes is not expected to be financially significant overall, and should be restricted to a limited number of circumstances. Illustratively, HM Treasury estimate that these restrictions will only raise an extra £50m of revenue in 2020/21. However there will undoubtedly be instances where the changes adversely impact individuals whose circumstances change unexpectedly and for reasons outside of their control.