The government published draft legislation for the next Finance Bill including draft clauses on the changes to Private Residence Relief (PRR). The draft legislation is subject to consultation which closes on 5 September 2019. These changes will have a large impact on the tax payable when selling properties previously used as a private residence.
Following consultation this Spring, changes are proposed to the Private Residence Relief (PRR) 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:
Brian Slater, Chair of CIOT’s Property Taxes Sub-committee, said:
‘HMRC need to put the ‘PR’ into ‘PRR’ and publicise these changes effectively.’
‘Many home owners are still unaware that the final period exemption was reduced from 36 months to 18 months in 2014. A further reduction to just nine months is likely to bring more property disposals within the scope of CGT. Whilst the average time to sell a property is around four and a half months, there will be many exceptions due to regional variations, separation and divorce, and other complexities.’
Another aspect of the relief which is also changing from 6 April 2020 is lettings relief, limiting it to narrowly defined circumstances in which the owner shares occupation of their house with a tenant.
Brian Slater continued:
‘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. Further, any ‘accrued’ letting relief will be lost, as no apportionment can be made between gains attributable to pre and post 6 April 2020 disposals. Again, this change brings more disposals within the scope of CGT.’