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Home sellers – watch out for capital gains tax changes

The Chartered Institute of Taxation (CIOT) is urging HMRC to maximise efforts to communicate forthcoming changes to capital gains tax which will introduce new and increase existing tax bills for some home sellers from April 2020.

Private residence relief (PRR) is a relief from capital gains tax (CGT) when someone sells their home. The relief ensures that the proceeds of the sale of the home are not reduced by a capital gains tax charge. One aspect of the relief is that provided the property has been the owner’s main residence at some point during ownership, the last 18 months (the ‘final exemption period’) almost always qualifies for relief, even if the owner has moved out, to allow for delays in selling. The government has today confirmed1 that period will reduce to nine months from 6 April 2020.

Brian Slater, Chair of CIOT’s Property Taxes Sub-committee, said:

“HMRC need to put the ‘PR’ into ‘PRR’ and publicise these changes effectively.

“Many home owners are still unaware that the final period exemption was reduced from 36 months to 18 months in 2014.2 A further reduction to just nine months is likely to bring more property disposals within the scope of CGT. Whilst the average time to sell a property is around four and a half months, there will be many exceptions due to regional variations, separation and divorce, and other complexities.”

Another aspect of the relief which is also changing from 6 April 2020 is lettings relief, limiting it to narrowly defined circumstances in which the owner shares occupation of their house with a tenant.

Brian Slater continued:

“The practical effect of these changes will be that very few sellers will qualify for lettings relief if they sell their home after 6 April 2020. Further, any ‘accrued’ letting relief will be lost, as no apportionment can be made between gains attributable to pre and post 6 April 2020 disposals. Again, this change brings more disposals within the scope of CGT.

“The government needs to consider its communications plan around these changes carefully. For example, simply updating guidance on GOV.UK is inadequate, and direct communications to estate agents, conveyancers, solicitors etc will be important to help ensure sellers are aware of the new rules. This is vital given the separate new requirement from April 2020 to report the disposal and pay any capital gains tax within 30 days of completion.”

CIOT has welcomed the government’s announcement that the introduction of a Stamp Duty Land Tax (SDLT) surcharge for non-UK resident property owners will not be included in the next Finance Bill.

Brian Slater added:

“We are concerned at the increasing complexity of tax rules that touch on residential property. SDLT has been the subject of technical change in virtually every year since its introduction in 2003. In our response to the consultation on this proposal we encouraged the Government to refrain from making further changes before the impact of other recent changes has been properly assessed and the evidence base for the surcharge evaluated fully. We are pleased they have listened and delayed the implementation of this proposal.”

Notes for editors

1. See the draft clauses for the Finance Bill published here.  and the government’s response to the consultation here.

2. The original rule when CGT (and private residence relief or PPR) was introduced in FA 1965 was for twelve months. This was increased to twenty-four months in FA 1980 with a further increase to thirty-six months in FA 1991 before being reduced to eighteen months for disposals after 5 April 2014 subject to the relief for disabled persons or care home residents (thirty-six months). We are particularly concerned that the new rules should be straightforward and well communicated.

3. The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,400 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Media should contact: George Crozier on 0207 340 0569 / 07740 477374 and gcrozier@ciot.org.uk

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