Moving house is never easy, and sometimes it can take months or years to sell the former home. That’s why there is some flexibility in the CGT relief for the main residence, such that the last 18 months of gain is exempt from CGT for any reason.
You may remember that this final period exemption was cut from 36 months to 18 months with effect for sales agreed after 5 April 2014, although the 36-month period is retained for disabled taxpayers and those who move into residential care. The government is proposing to cut this final period exemption again to 9 months, and retain the 36 month exemption for those who currently qualify.
The Budget 2018 notes are vague about when this change will take effect. Table 2.1 in the main Budget summary indicates that these two changes are expected to generate some £15m of additional tax in 2019/20 (see item 57). This indicates that the final period exemption will be cut with effect from 6 April 2019 rather than from 6 April 2020, as the text implies.
The second change to CGT main residence relief is to remove lettings relief where the owner no longer lives in the property. Currently if the taxpayer moves and lets his former home, lettings relief can exempt a portion of the gain equivalent to the lower of:
- gain for let period
- gain exempt due to occupation as main residence
- £40,000 per owner.
The government is proposing to restrict lettings relief to periods in which the owner also occupied the property while part of it was let. This change is due to take effect from 6 April 2020. However, the Budget notes are not clear as whether this refers to disposals made on or after that date or for let periods beginning on or after that date.
Legislation to bring in these changes is expected to be included in the 2020 Finance Bill.
Written by the Tax Advice Network