Proposed changes to Private Residence Relief (PRR) were announced in last year’s Budget, set to apply from April 2020. These proposals would target individuals seeking capital gains tax (CGT) relief when selling their home, but not occupying the property.
How PRR currently works
PRR was introduced in 1965, to protect individuals from CGT when disposing of a property used as their only or main residence.
This benefit was then extended to individuals who, through various circumstances, did not occupy their property for the entire period of ownership. Periods of absence are currently ‘deemed’ periods of occupancy if any of the following apply:
- Absence of up to 36 months (for any reason), provided the homeowner returns to their property;
- Absences during which the homeowner is in employment and all their duties are carried on outside the UK;
- Absence periods of up to four years where the distance from the homeowner’s place of work prevents them from living at home, or their employer requires them to work away from home in order to do their job effectively.
- If the property was let out during the period of ownership. This lettings relief is the lower of:
- The amount of PRR already calculated;
- £40,000; or
- The amount of any chargeable gain made because of the letting.
This relief applies to an individual – not the property – so lettings relief of up to £80,000 can be claimed where a property is jointly-owned by a couple.
In addition, the final 18 months of ownership is excluded from the above, to allow people a CGT-free period in which to sell their property after moving out.
The proposed changes announced in the Autumn 2018 Budget, should they be adopted, would take effect for property disposals on or after 6 April 2020 and are as follows:
- The final period exemption will be reduced from 18 months to nine months.
- This is to stop PRR being claimed on more than one property simultaneously and will instead target the exemption at owner-occupiers with one main residence.
- Lettings relief will only be permitted in cases where the owner remains in ‘shared occupancy’ with the tenant.
HMRC’s public consultation on the above changes ran from 1 April 2019 to 1 June 2019 and we are now awaiting the outcome of the consultation process.
Peter Harker, Partner, and Alice May, Assistant Manager