Capital Gains Tax – HMRC consulting on upcoming UK property changes

On 1 April, HMRC opened a new consultation on the upcoming changes to the taxation of property disposals made by individuals. Please see our recent blog, “UK Property – Important taxation changes on the way”, for the background of the changes in property taxes.

HMRC are now seeking views on specific elements of the proposed rules to further assess their wider impact. They have also raised queries on other aspects of Principle Private Residence (PPR) relief which are not, as yet, subject to any upcoming changes.

We highlight a couple of the main points below on which views are sought.

PPR and Lettings Relief

Under current rules, PPR relief can be claimed for the gain arising during the final 18 months of ownership of a residential property.  For property sales after 5 April 2020, this period will reduce to 9 months. This change is targeted at individuals who are benefiting from PPR accruing on multiple dwellings simultaneously and is likely to lead to an increase in capital gains tax (CGT) payable on the disposal.

At the same time, the availability of Lettings Relief is also to be restricted considerably. This will only be available for periods where an owner was in shared occupancy with a tenant. There is currently no such condition and this change will significantly reduce relief claims. HMRC’s view is that Lettings Relief has extended beyond the original purpose of the legislation, which was to protect property owners who would potentially lose the benefit of PPR if they let out spare rooms within their home to lodgers.

HMRC estimate that these changes will affect around 40,000 people per year, generating additional revenue of £150 million by 2023/24. They have invited general comments about the implications.

Property transfers between spouses or civil partners

At the moment, a spouse or civil partner can inherit the ownership history (period of ownership and property use) for the purposes of PPR relief upon a transfer of the property into their name. This only applies if the couple actually reside in the property in question at the time of the transfer.

HMRC have invited comments on whether the requirement to reside in the property at the time of transfer should be removed. A removal of this condition could lead to tax planning opportunities for couples who hold multiple properties which have, at some stage, been their main residencies.

If you would like to discuss how the upcoming changes will affect you, please get in touch with Jill Walker or your usual AAB contact.