The government is currently consulting on important changes to private residence relief that are likely to be introduced from 6 April 2020.
The two possible changes announced in the Autumn 2018 Budget are:
- Limit to just 9 months the period prior to disposal that counts as a period of deemed occupation
- Limit “letting relief” to periods where the taxpayer is in shared occupation with the tenant.
Final period exemption to be reduced
The final period exemption was shortened from 36 months to 18 months. The 36 month period was intended to help taxpayers “bridging” and waiting to sell their previous residence, though the period was being abused by a strategy known as “second home flipping”, resulting in the final period relief being restricted to the current 18 month period of deemed occupation a couple of years ago.
The latest proposal is to reduce the period even further to a 9 month period, though 36 months will still stand for those with a disability or moving into care.
Proposed changes to Private Residence Relief (PRR)
Private Residence Relief (PRR) currently provides a further exemption for capital gains of up to £40,000 per property owner (£80,000 for a couple). The relief was introduced so homeowners could let out spare rooms on a casual basis and still benefit from PRR. The relief was introduced for property owners who share occupancy with their tenant(s).
Since being introduced, the relief has benefited those who let out a whole dwelling that was at some stage their main residence. Landlords use sites such as Air BnB to let out the dwelling, these are the people the government are trying to stamp down under the proposed changes.
Note that those who are renting their property temporarily whilst working elsewhere in the UK or working abroad are unlikely to be affected by the change as there are alternative reliefs available under those circumstances.