No capital gains tax liability arises if a gain occurs on the sale of a property which has been the owner’s only or main residence throughout the period of ownership then the gain is fully sheltered by private residence relief. However, there are advantages to be had if the property has been the only or main residence for part of the period of ownership – not only is that period covered by private residence relief but the door is opened to benefit from the final period exemption and, where the property has been let, lettings relief.
However, time is running out to benefit from these reliefs in their current, more generous, form.
Final period exemption
The final period exemption extends private residence relief to the final period of ownership where the property has been the owner’s only or main residence at some point in the period of ownership. Until the end of the 2019/20 tax year, the final 18 months of ownership is exempt. However, from 6 April 2020, this is halved to nine months, although, as now, it will remain at 36 months where the owner is disabled or goes into care.
Where a sale is on the cards, completion before 6 April 2020 will keep the last 18 months of ownership tax-free as long as the property has been the only or main residence at some point.
As it currently applies, letting relief can reduce the chargeable gain on a property that has been let and which has been the owner’s only or main residence at some point by up to £40,000. The relief reduces the chargeable gain by the lower of:
- the gain attributable to letting (usually, the gain not sheltered by private residence relief)
- the amount of private residence relief available
- the gain attributable to letting
Lettings relief is being curtailed from 6 April 2020 and for properties disposed of after that date, it will only apply where the landlord is in shared occupancy with the tenant. So, if you own a property in which you live as a main home and subsequently move into a new home retaining the former home which you let out, you will not qualify for letting relief if you dispose of the property after 6 April 2020. Combined with the reduction in the final period exemption, the tax bill for post 6 April 2020 disposals may be significantly higher than that for disposals before 6 April 2020.
Consider selling before 6 April 2020
If a disposal is on the cards and you currently would benefit from lettings relief and/or the final period exemption, where possible aim to complete before 6 April 2020 to enjoy these reliefs in their current, more generous, form.