CGT Relief Restrictions for UK Residential Property Owners
Currently, when an individual sells a UK residential property, capital gains tax (CGT) may be payable unless the property qualifies as the individual’s principal private residence (PPR) for the entire period of ownership. If so, PPR relief will be applied and the gain will be tax free.
Where a property qualifies as an individual’s PPR for only part of the period of ownership, PPR will be apportioned. In these cases, individuals can also benefit from the ancillary reliefs of:
- Final period exemption. This affords relief for the final 18 months of ownership, irrespective of whether the individual lived in the property during the last 18 months.
- Lettings relief. If the property was let during part of the period of ownership lettings relief will be given for the let period of up to a maximum of £40,000.
From 6 April 2020 restrictions will be introduced to the above ancillary reliefs.
- Final period exemption will be reduced from 18 to 9 months.
- Lettings relief will only be available to those who are in shared occupancy with a tenant. Lettings relief was first introduced to encourage people to let out spare rooms within their property on a casual basis without losing the benefit of PPR.
These restrictions, together with the restriction of mortgage interest relief to the basic rate of 20% only, reflect the current policy of penalising property owners.
These changes may have a significant impact in respect of CGT for individuals who own more than one UK residential property, particularly where one of the properties has at some time been the owner’s PPR.