14 April 2020

Although things are static in the property market as a result of the COVID-19 situation, it’s worth bearing in mind the tax rules for when the market picks up again.

In most cases, if you sell your main residence for more than you originally paid for it, you’re exempt from paying capital gains tax (CGT).

This is because of what’s known as private residence relief (PRR), which stops many homeowners having to pay 18% or 28% CGT on the property’s gain in value, depending on their tax bracket.

However, the Government is now cracking down on cases where it thinks PRR should be denied. To qualify for PRR, you must:

• occupy the property as your main home with the intention of permanence
• equip the property for normal living with items like a cooker and a washing machine
• show that land around the property (like a garden) is enjoyed as part of that dwelling and not used for some other purpose, ie business – it might also be disqualified if it’s more than 0.5 hectares
• nominate only one home – if you own multiple properties.

Changes afoot

From 6 April 2020, you now need to report the disposal of property to HMRC within 30 days of completion if there is a tax liability.

You should also bear in mind changes to rules relating to periods of ownership when the property isn’t occupied. From 6 April 2020, PRR still applies, even if you don’t reside at the property, for the final nine months before its sale. Previously this was 18 months. However, for disabled persons or people who have moved from their main residence into a care home this final disregarded period remains 36 months.

The extended exemption from CGT when your home has been let for part of your ownership will only apply on disposals after 5 April 2020 if you shared occupancy of your home with tenants. A maximum of £40,000 can be claimed in this way.

From 6 April 2020, a property is treated as your only or main residence for up to an initial two years if occupation is delayed by the completion of construction, renovation, redecoration or alteration of the home or the disposal of your previous home – provided the new property isn’t someone else’s residence during this period. Until then there is a slightly different and less generous extrastatutory concession available.

Non-residents’ gains on UK residential property

Non-UK residents are also subject to tax on gains from the disposal of UK land and of certain interests in assets that are ‘property-rich’. They must report disposals to HMRC within 30 days of completion (even if there is no tax liability) and they have to pay any capital gains tax within the same period.

For more information, see here 

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.

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