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After months and months of debates, discussions and quite possible arguments, it seems like we are now still nowhere nearer to knowing if (or possible not) Brexit will occur on October 31st 2019. With this in mind, as a tax adviser, many of the questions I receive revolve around, should I sell my property because of Brexit, or should I hold on to it? Although we cannot predict what will happen to the property market, there is one big change to a tax relief which you should consider in more detail.
Firstly, as an individual you will pay Capital Gains Tax (CGT) on the difference between what you dispose a property for and what you initially acquired this for. There are additional reliefs for the expenditure which has been incurred in relation to the acquisition and disposal of the property. With the tax being as high as 28%, almost all individuals want to know how can you reduce the amount subject to tax.
As mentioned above, one of the biggest reliefs to date has been Private Residence Relief (formerly referred to as PPR Relief). The reason why this has been such a big relief is that if the property you are disposing of has been your only home / main residence, this relief potential exempts the whole gain from CGT. This relief is somewhat restricted as soon as you acquire a secondary property / are not living in the property as your main residence. However, for those homeowners having owned their main residence for many years, you can appreciate how valuable this can be. However, from 6 April 2020 there are a number of changes that will affect the tax payable.
Under the current rules, provided the property is the owner’s only or main home (at some point during the ownership) then the final 18 months of ownership will always qualify for this PPR relief. This is irrespective of whether there was actual occupation. However, from the 2020/21 tax year onwards, this 18 month period will be reduced to 9 months which has the potential of increasing taxable gains by 9 months. This is a significant reduction from the old rules which allowed the last 36 months of ownership to be exempted from tax.
A secondary change is to a relief called ‘lettings relief’. Previously where a property is being let that had been a main residence at some point during ownership, this relief allowed for up to a further £40k of gains to be exempted. However, from 2020/21, the owner must be in shared occupancy with the tenancy before they are entitled to claim this relief. As an example, this could cost up to a further £11,200 in taxation which is a significant sum of money to anybody.
One final key change is that when a spouse transfers their share of a property (that has PPR relief on the existing owner) to the other, to date, the entitlement to PPR for that share has not been previously transferred – this is even though the transaction often occurs on a no-gain-no-loss basis where no tax is due and the old base cost is inherited. From 6 April 2020 this is to change with the old entitlement to PPR being no made available to being transferred across.
Therefore although it may go unnoticed, these changes are likely to cause a significant impact on homeowners and therefore it is important to carefully consider the position of a property being disposed pre or post 6th April 2020. For more information, please contact one of our property tax specialists for further guidance on how these changes (as well as other tax changes) could impact you on 020 8429 9245 or [email protected].
By far the best way to manage your tax affairs is to consult a professional, so, if you want to maximise your earning potential and stay up to date with all the latest tax legislation, you need to speak to a specialist adviser.
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