Press release: Questions remain on private residence relief announcement

“We will be keen to respond to this consultation as there are a number of issues to consider here. The final period of exemption allows people to move into their new home but still benefit from private residence relief if their old home takes time to sell. We have concerns that, 12 months after Brexit may not be the appropriate time to make a cut. Historically the final period exemption applied for 36 months before it was reduced to the current 18-month limit. A longer period is very helpful for those struggling to sell property during periods of economic difficulties and we will want to ensure that there are no unintended consequences – especially for householders who are in a negative equity or any other difficult situation.

“Another aspect of the consultation will be of particular relevance to those with second homes who have sought to benefit from a longer period of final exemption by a process known as ‘flipping’ – electing for their second home to be their main residence for a short period, and then electing back. This caused a stir a few years back when it was revealed that the practice was used among others by some Members of Parliament. It is interesting to see that the Chancellor has returned to this issue now.

“The Government are also looking to reduce the time in which individuals selling residential properties must report any gain to 30 days from the date of completion of the sale. From April 2020, home owners may well be caught out not only by CGT when their home fails to sell, but onerous requirements to report the disposal in a short period of time.”

In today’s Budget, the Chancellor announced that there will be a consultation on the duration of the final exemption period for private residence relief (PRR). When a property has been an individual’s only or main residence at some point during their ownership, they are entitled to PRR for the final 18 months of ownership whether or not they were actually living in the property in that period.

The proposal is to halve this period from 18 months to nine months with effect from April 2020. This means that individuals who have moved out of their home and find that it is still on the market nine months later, could be liable to Capital Gains Tax on a property that has been their main residence.

Notes for editors

1.  An outline of the plans can be found on paragraph 3.41, page 46 of the Budget 2018 ‘Red Book’.