A taxable gain when selling a residential property is subject to Capital Gains Tax (CGT) at 18% or 28%. However, if the owner has occupied the property as their main residence at any point, Principal Private Residence (PPR) relief is available to help reduce the assessable gain.
As well as providing tax relief for periods of actual ownership, PPR also provides relief for periods of deemed occupation.
When a homeowner moves out of the property before it is sold, HMRC allow a concessionary period of deemed occupation to allow the owner time to sell without creating an assessable gain.
Currently, the final 18 months of ownership (formerly 36 months) is regarded as a period of deemed ownership and is therefore exempt. From April 6, 2020, the final period will be reduced to just nine months. There will be no changes to the 36 months final period exemption for owners in care or those with a disability.
Where a former main residence has been let out, owners can claim lettings relief to reduce the assessable gain by up to a maximum of £40,000. Historically, this relief has been hugely valuable to property owners.
From 6 April 2020, lettings relief is being restricted so that it only applies to periods of ‘shared occupancy’ i.e. the owner must also reside in the property. Whilst full details of the changes have yet to be published, it appears to spell the end of lettings relief for those who rent out their former main residence.
Top tip: The proposed changes are an effective cliff edge and those looking to sell their former main residence after April 6, 2020, are likely to face a significantly higher capital gains tax liability and may want to consider the benefits of selling sooner.