In this year’s Budget, the Government has introduced changes to two ancillary reliefs from Capital Gains Tax (‘CGT’) in relation to an individual’s principal residence, which will apply from 6th April 2020 and are likely to affect those letting out a property that used to be their main residence. The Government has stated that the purpose of these changes is to try to ensure Principal Private Residence Relief (‘PPR’) is available mainly to owners who have occupied a property throughout their period of ownership, but the changes are likely to have an impact on a number of people, including those who are finding it difficult to sell a property, those who have relocated for work or other reasons, and couples who have separated, as well as some landlords.

When an individual sells his or her main residence, he or she does not have to pay CGT on any gain made because of PPR.  At the moment, PPR is also available where a property is being let for part of its period of ownership, by reason of two ancillary reliefs:

• Individuals are given an additional period of exemption from CGT for the final 18 months of ownership; and
• Individuals can claim lettings relief, which provides up to £40,000 of relief from gains (or £80,000 for couples who own together) made on a property that used to be their main residence.

From April 2020, the final period of exemption will be further reduced from 18 months to 9 months, which the Government claims is twice the length of the average property transaction, and so should give more than enough time to make full use of the exemption (please note that the period of exemption will remain 36 months only for individuals who are disabled, or who have moved into a care home). Before 2014 the final period of exemption was 36 months, and this was reduced to the current 18 months in April 2014. Bearing in mind the current uncertainties surrounding Brexit, this further change to the period does not seem to take into account that it may take much longer than 9 months to find a buyer, particularly at the top end of the market.

Also from April 2020, lettings relief will only be available where the individual is sharing occupation of their main residence with a tenant. This means that the relief will only be available to a very small proportion of landlords – who may have been able to benefit from PPR in any case, as is the case now in shared occupation situations.

The Government will consult on these changes, although no details of the consultation have been published yet. If the changes are introduced, those who are letting a property which used to be their main residence should seek advice to assess the likely effect of the changes on any capital gains tax bill when they come to sell.

For more information, please contact the partner having responsibility for your affairs or any partner in the private client department here.