Selling your old home? Beware, reduced CGT relief!

The final period of ownership for which principal private residence (PPR) relief applies automatically to a dwelling previously occupied as PPR will be reduced from 36 to 18 months from 6 April 2014. The change affects all homeowners except disabled persons, including long-term care home residents.

Preserving the benefit of the relief

If you are in the process of selling or looking to sell, you can preserve the final 36 months’ relief by:

  • exchanging contracts before 6 April 2014; and
  • completing the sale before 6 April 2015.

Do you need to consider protecting the relief?

Changing your plans to protect the relief is worthwhile if losing the greater relief will actually cost you more in tax than you might lose by accepting a lower price or incurring additional costs. You may be able to use your CGT annual exemption of £11,000 in 2014/15 (doubled up to £22,000 for a couple).

The measure is targeted at people who own more than one property and ‘flip’ the allowance from one home to another but it also affects those who have rented out a property that was previously their main residence or have had to take out a bridging loan because they had to move but could not sell their old house. 

The window of opportunity for preserving full relief will close at midnight on 5 April 2014, so if you are likely to be affected you need to make thinking about this one of your new-year resolutions.

Exception for disabled persons

The 36 month final period remains in place for:

  • disabled persons, as defined in FA 2005 Sch. 1A Para. 1; and
  • long-term care home residents

who do not have any other residence available to them.

This extension is available to property owned by:

  • the individual personally;
  • their spouse or civil partner; and
  • trustees of a settlement if the beneficiary who occupies the property, or their spouse, is disabled.

A person is a long-term resident of a care home if they have been or are likely to be resident in a care home for at least three months.

Planning after 6 April 2014

Disabled persons, families in which there is a disabled person occupying a house where neither they nor their spouse is the owner, and trustees owning property occupied by beneficiaries, especially disabled beneficiaries, may need to review how they hold their property to ensure that they obtain the full benefit of the relief for disabled persons.