The government has recently published draft legislation for the next Finance Bill including draft clauses on the changes to Private Residence Relief (PRR).
Private Residence Relief is a relief that enables taxpayers to sell their homes without having to pay the capital gains tax. In order to claim the relief, the property being sold must be the taxpayer’s main residence.
Following the consultations this Spring, the changes which have been proposed to the Private Residence Relief regime from April 2020. For properties that have not been occupied throughout the period of ownership, available deductions for capital gains tax purposes will be limited as follows:
- The final period exemption will be decreased from 18 months to 9 months
- Lettings relief will be reformed so that it only applies to the circumstances where the owner of the property is in shared occupancy with a tenant.
The chair of CIOT’s Property Taxes Sub-committee, Brian Slater believes that these changes need to be publicized effectively. This is a concern to many as some home owners are still unaware that the final period examination was reduced from 36 months to 18 months in 2014.
Another aspect of the relief which is also changing from April 6th 2020 is the lettings relief. This change will limit it to a narrowly defined circumstance in which the owner shares occupation with their house with a tenant. The practical effect of these changes will be that very few sellers will qualify for lettings relief if they sell their home after 6 April 2020.
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