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Disposal of a former main residence

Significant changes to Principal Private Residence Relief and Letting Relief for homeowners

Disposal of a former main residence

Are you planning on disposing of a home which is no longer your main residence, or a property which has been let at some period during ownership? If so, you might want to consider a disposal before 6 April 2020, if that is possible.

The Government proposed significant changes for relief available to homeowners in the 2018 Budget, which have now been approved, with the following changes due to take effect from 6 April 2020.

Reduction of the 18 month exemption

Currently, if a property has been your main residence, at any point during the period of ownership, the final 18 months of ownership are exempt from Capital Gains Tax (CGT). The rule was originally introduced to allow for the practicalities of selling and moving. Therefore the exemption does not depend on whether you are living in the property for those final 18 months. 

From 6 April 2020, the exemption will be reduced to nine months, as the Government considers this to be sufficient and strikes the right balance between providing relief during the process of sale, and not allowing excessive relief on two properties concurrently.

The special rules allowing 36 months relief for the disabled and those in a care home will not change.  

Letting relief

Letting relief is available on properties that have been your main residence at some point during the period of ownership, and have been let to a tenant. The maximum relief is capped at £40,000 (£80,000 for couples).

From 6 April 2020, letting relief is only available for shared occupation tenancies. Therefore, if you are not living in the same property as the tenant, no letting relief will be available. The maximum relief of £40,000 (£80,000 for couples) remains unchanged.

What will this mean?

Individuals will face a shorter period of final period exemption and so will have to pay more CGT on their gain, when they sell a residential property which was their former main residence. Those who sell a residential property that they have let out, and were not a shared occupant with their tenants, will lose their entitlement to letting relief (up to £40,000) following the changes, and will have to pay more CGT on their gain.

The Creaseys tax team has considerable experience of advising on all aspects of residential property transactions and structuring their ownership to achieve our clients objectives. If you would like further information or advice on the upcoming changes, or would like to discuss your residential properties in general, please call your usual Creaseys contact on 01892 546 546.