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  • Katherine Bullock

Running to keep up – Property Tax Update – FA 2020 changes to PPR

Principal Private Residence Relief (PPR) is problematic. It exists in the minds of most taxpayers as a fundamental understanding that there is no tax when you sell your home and as something that HM Revenue & Customs never query. Whereas in reality it is a complex and fiddly relief where disputes are frequent and, whilst opportunities abound, they are often missed because “there is no tax when you sell your house”. There have been a number of recent cases that illustrate my point, the latest being Stephen Core v HMRC [2020] UKFTT 440. Finance Act 2020 triples the legislation that covers PPR with six changes that are important to note if you own a home and plan on selling it.

"...six changes that are important to note if you own a home and plan on selling it..."

Final period exemption reduced to 9 months As of 6 April 2020, the final period of ownership that qualifies for PPR regardless of occupation is 9 months but note that it remains 36 months for disabled or care home-bound property owners. Previously, a property which was occupied as an individual’s main residence was eligible for PPR for the last 18 months of ownership regardless of how it was used, with an extension of that grace period to 36 months for property owners who are disabled or moving into a care home as a ‘long-term resident’. The government decided that 18 months allowed too much of an opportunity to double up on CGT-free gains by claiming the relief on two properties at the same time (known as “flipping”). Instead 9 months is apparently the perfect balance between sufficient time to sell your old property after moving out and the gratuitous obtaining of a tax advantage. It still appears to be roughly twice the time it takes to sell the average property pre Covid-19 and so the change should not disadvantage most taxpayers moving home.

Letting relief only where there is shared occupation The other relief that has been curtailed in this year’s Finance Act is Lettings Relief. While originally intended to benefit those renting out a spare room, the relief gradually expanded to cover the letting of entire properties previously used as a main residence. This, it was decided, went beyond the scope of the legislation’s intentions. As such, announced in 2018 and finally enacted as of 6 April 2020, this relief is replaced by a relief calculated on the same basis which now applies exclusively to landlords who share occupation of their main dwelling with a tenant throughout the length of the rental period. It is important to note that where the disposal takes place after 6 April 2020, the changes apply to periods of letting before that date.

No time limit on election for main residence where a property has negligible value ESC D21 has been enacted as TCGA 1992 s.222(5A), giving statutory certainty to the position that a taxpayer can make an election as to which property is their main residence beyond the initial 2 year time limit, provided that one of the properties has little or no capital value and thus would almost certainly never attract any CGT in the first place. This is good news, particularly as many taxpayers were unaware that an election might be required or advantageous in the first place. For example, where they rented one of their main residences, say their London flat. Unlike the old concession, there is no need to be unaware of the need to elect or to elect within a reasonable time of becoming aware.

Statutory right to 2 year moving in period ESC D49 becomes TCGA 1992 s.223ZA, and allows a 24 month period during which the property can be treated as the main residence of the owner from the date of acquisition to occupation (moving in time) provided that construction, renovation, redecoration or alteration of the property is completed during the moving in time, or the taxpayer has disposed of another property that was his main residence within that period. This removes a potential source of conflict between two decisions of the First-tier Tribunal (White and McHugh). It is interesting that the legislation does not expressly require the event in question to cause the delay in moving in.

Inter-spouse transfers In the past the rules for inter-spouse transfers of a main residence could be positive or negative depending on the fact pattern. They certainly presented an opportunity to wipe out chargeable gains for the alert taxpayer, who considered the position in advance and ensured that the transfer was or wasn’t their main residence depending on the desired result. From 6 April 2020, the wording of s.222(7) of TCGA 1992 changes with the effect that on transfer a transferee spouse will always inherit the history of their transferor spouse’s use of a property, regardless of whether it is their main residence at the time of the transfer. Any pre-April inter-spouse transfers will still benefit from the old rules.

Armed forces allowance and PPR Finally, PPR will apply from 6 April 2020 to a qualifying property owned by a member of the armed forces who receives the armed forces accommodation allowance rather than occupying services accomodation.

Some of the changes are minor or niche; some are more wide ranging. Given that for many the family home is a significant investment, it is essential to warn clients to plan early to avoid unexpected and significant tax charges.


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