Principal Residence Tax Changes from April 2020

July 11th, 2019

Taxes and selling a house; take care!

If you are considering selling your house, or a property that used to be your home and is now rented, you should be aware of some changes in the tax rules taking effect from 6 April 2020 that could affect any capital gains tax you pay on selling a house.

Background

A relief known as Principal Private Residence Relief usually prevents any capital gains tax becoming due on the disposal of your home where it has been the only property you owned and lived in.

Capital gains tax (CGT) may be due if you did not live in the property throughout the whole time you owned the property. Certain periods, such as the final eighteen months and any time spent working abroad, are treated as periods that you lived in the property.

Another relief known as Lettings Relief provides up to a further £40,000 (£80,000 for joint owners) of relief in addition to Principal Private Residence Relief where a property that used to be your home has been let.

Any CGT arising is payable on the same day that any balancing payment under normal self assessment tax return rules is due; 31 January following the year of assessment.

Tax on home sale Principal Private Residence Relief

The Proposed Changes

Tax Payment Date

From 6 April 2020, any capital gains tax due on your house sale must be paid within 30 days. Until 5 April 2020, the payment date for the tax on the house sale is 31 January following the end of the tax year (5 April).

Final deemed period of occupation

From April 2020, the final period treated as though you lived in the home even if you did not will be reduced from eighteen to just nine months. This could increase the amount of capital gains tax you pay when selling your house.

Disabled owners and those in or moving into care homes will still benefit from being treated as though they lived in the property for the final three years of ownership whether they actually lived in the property or not.

The consultation document states that it usually takes less than nine months to sell a house which could indicate an intention to reduce the final period of deemed occupation even further.

Lettings Relief

From April 2020, lettings relief will only be available where you live in the property with tenants at the same time. This greatly reduces the likelihood of a claim for Lettings Relief which is currently quite a generous relief. It still provides some relief if you let rooms on a casual basis and continue to occupy the home as your main home.

Late elections to choose your main home

If you have more than one property that could be treated as your main home, you currently have two years from the date you take ownership of the second property to make an election for which property you want to be treated as your main home.

By concession, HMRC allows you a longer period of time to elect which property is your main home where you were not aware of the two year time limit. This concession is now being made law. This will provide certainty to those with little tax knowledge who, for example, own a country home and rent a city flat for work during the week. If this issue affects you, then you must take action when you’ve read this blog because now you know!!!

Moving delays

A further concession allows HMRC to treat up to the first twenty four months of your ownership of a property as your main home even if you do not live in it. This is useful in situations where for example, you have bought a plot of land and are building a new home on it. This concession is also being made law.

Inter Spouse Transfers

The consultation also includes proposals for your husband, wife or civil partner to inherit your use of the property when it is given to them. The consultation highlights specific situations where capital gains tax can be avoided or must be paid where the rules weren’t intended to give the results they do. It will be interesting to see how the government intends to cover all situations.

Action Points

Accelerating the disposal of a main home is unlikely to be practical or attractive. However, if you have been considering selling your home, you should carefully consider the timing and the tax on a house sale either before or after 6 April 2020.

If you would like any tax advice on the impact of the new rules or help with working out the capital gains tax on selling your house or any other property related tax issue, please contact us for assistance.

Principal Residence Relief