Beat the changes to main residence ancillary reliefs

From 6 April 2020, two of the reliefs associated with the Capital Gains Tax (CGT) main residence relief are to be significantly curtailed. Therefore, if you are likely to be affected and are currently considering disposing of a potentially affected property, it may be prudent to sell, before 6 April 2020 rather than on or after that date to benefit from the current, more generous, reliefs.

The benefit of being an ‘only or main residence’

Any gain arising on the sale of a residence which has been the owner’s ‘only or main residence’ for the whole period of ownership is exempt from CGT.

However, currently, there are additional ‘generous’ CGT reliefs available if the residential property has been the only or main residence for some, if not all of the period, of ownership.

‘Final period exemption’

Where a property has at some point been the owner’s only or main residence, the final period of ownership is exempt from CGT.

The final period is currently set at 18 months, with a longer period of 36 months applying where the person making the disposal is a disabled person or a long-term resident in a care home.

Reduction in final period

From 6 April 2020, the final period exemption will be halved to nine months (although it will remain at 36 months for disposals by long-term care home residents and disabled persons). This change will potentially bring more of a taxable gain into the scope of CGT.

‘Lettings relief’

‘Lettings relief’ is a valuable relief currently available on the disposal of a property which at some point during the period of ownership has both been rented out and occupied by the owner(s) as their main residence. In its current form, letting relief can remove gains of up to £40,000 per person from a charge to CGT.

Current rules

Under the rules, in place until the end of the 2019/20 tax year, the amount of lettings relief available is the lowest of the following three amounts:

• the amount of private residence relief available on the disposal;
• £40,000; and
• the gain attributable to the letting.

The relief applies regardless of the whether the landlord lives, or lived, in the property while it was rented out.

Reduced relief from 6 April 2020

From 6 April 2020, lettings relief will only be available where the landlord shares occupancy with the tenant(s).

The restricted relief will be available to relieve a gain that would otherwise be subject to CGT because it relates to the part of the main residence that has been let out as residential accommodation.

Where the relief applies, the gain is only chargeable to the extent that it exceeds the lower of:

• the amount of the gain sheltered by private residence relief; and
• £40,000.

Beat the changes

If you are considering selling a current or former letting property it would be wise to seek advice from us. It is likely, depending on your individual circumstances, that we will tell you that in order to benefit from the current, more generous reliefs, you should aim to, at the very least, have exchanged contracts before 6 April 2020.