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Personal tax  •  Tax Planning  •  Tax Relief  •  Taxation

New PPR rules and 30-day tax payment deadline

By RJP LLP on 22 October, 2019

Principal private residence (PPR) relief will be changing from April 2020, with the final period exemption reducing from 18 months to 9 months, and the lettings exemption effectively being withdrawn where an entire property is rented out.  

In many cases, one home is sold in order to buy another, so PPR relief is available to exempt the entire capital gain. Sometimes however it isn’t possible to sell the first home immediately and it may remain unsold for some time, perhaps leading to a period of being rented out. This could be because of market conditions, maybe complications around a divorce, or perhaps the owners are required to suddenly move to a new area.

How is flipping impacted by the new PPR rules?

PPR rules for the final period of ownership are such that as long as the property has been the owner’s main residence for some time during its ownership, that individual will be deemed as having been in occupation during those final months, even if this wasn’t actually the case. For this reason, many people with multiple properties have practiced ‘flipping’, whereby they elect to make a particular property their main residence, to take advantage of PPR relief for the final period if they decide to sell in the future.

By restricting the PPR timeframe to 9 months, the government is taking away this planning strategy or at least, making it less beneficial.

Restrictions to lettings relief

Ensuring a property has been a PPR for at least some time during its ownership currently also means that the lettings exemption, of up to £40,000 per person, is available if the property has also been rented out.

Lettings relief will also be restricted from 6 April 2020, with the exception of situations where the homeowner and tenant are both occupying the property (known as ‘in residence’) at the same time. Importantly there is no transition period for property owners, and it has the effect of removing lettings relief retrospectively for taxpayers whose past lettings do not meet the new conditions.

For a higher rate taxpayer who would otherwise have had access to the maximum available lettings relief, i.e. £40,000, this measure will cost them an extra £11,200 in tax overnight.

The restrictions to lettings relief will also impact people who are providing guest house or B&B services, for example, through AirBnB. Under the new conditions, guest houses run on a scale that constitutes a business would not qualify for lettings relief.

New 30-day payment deadline for CGT

For some people who find themselves with multiple properties because they couldn’t sell their home quickly, these new rules could result in an unexpected capital gains tax liability. Thankfully, if the property was predominantly a main residence throughout the period of ownership this is unlikely to be too onerous, but what may come as a surprise is the need to report any tax due and pay it within 30 days of completion. These new rules have already been given Royal Assent and will become effective from 6 April 2020. It effectively brings UK residents into line with non-UK residents, who have been obliged since April 2015 to pay CGT due on a property sale within 30 days.

If you have multiple properties and are considering making a PPR election, or wish to discuss other aspects of property tax, please contact us at partners@rjp.co.uk

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31 December 2020 - Review disposals of chargeable assets to avoid a possible CGT increase

Capital gains tax is due to be reviewed by the government and if a CGT rise is announced, the new rates may become effective from the next tax year on 6 April 2021. Take advice now if you are thinking of selling property or have other assets giving rise to a capital gains tax liability.