The 2018 Budget contained alterations to two of the ancillary reliefs in Private Residence Reliefs, specifically those that give relief on property that was rented during the period of ownership and also on gains made in the final duration of ownership, no matter the occupancy.
With effect from April 2020, lettings relief will be changed to make sure that it is only available to those who are occupying and sharing with a tenant. The last period exemption will also be changed to 9 months.
It has in the past been the case that property owners can claim private residence relief if they let out a property that they have actually stayed in, when they dispose of the property. A couple of good examples are when they can not sell when moving out to a new residence, when they move for the purpose of a job, or they merely need some earnings from the uninhabited residential property.
As from April 2020 Private Residence Relief will only be available where the property owner has been sharing occupancy of the property with his or her tenant. This is a situation that is going to affect really few people, so in effect the Private Residence Relief’s second residence advantage is being eliminated completely.
Currently, Private Residence Relief offers approximately ₤ 40,000 of tax relief (₤ 80,000 to couples) to people that rented out a residential property that is, or has at some point in the past, been their principal place of residence.
As it stands right now property owners do not pay any Capital Gains Tax for the time that they lived in their property, plus an added exception period of 18 months (this was three years up until lowered in a previous Budget) that they had it. Unfortunately this final period of ownership exemption is going to be reduced much more to nine months.
In effect, this benefit is being removed completely and can result in a situation where property owners will hesitate to leave before selling their own home, perhaps slowing even more the currently sluggish property market.
The new rules are also likely to lead to a situation where many landlords decide to sell their property before they come into effect in April 2020. When they have actually resided in the building themselves, and where there is most likely to be a big capital gain tax on disposal, there is going to be a big temptation to sell, before the new legislation comes into play.