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Markel Tax

12 Feb 2020

Changes to Principal Private Residence Relief

Property owners disposing of a dwelling, which at some point of ownership was used as their only or main residence, are currently entitled to claim principal private residence relief (PPR) for the period of ownership as well as the final 18 months regardless of the use of the property. Several changes to PPR relief were announced at the 2018 Budget and will become effective from 6 April 2020, impacting the amount of relief available on disposals on or after this date.

Final period of ownership

One of the changes being implemented is a reduction of the final exemption period from 18 months to nine months, except for property owners with a disability or a resident in care home, who will remain entitled to a final exemption period of 36 months.  
The changes are most likely to impact those individuals who no longer live in the old main residence but are unable or are having difficulty selling the property within the shortened final period of nine months. Those individuals could have an unwelcome chargeable gain.

Letting exemption

Changes will also be made to the availability of letting relief.
Letting relief currently applies where an individual lets out their only or main residence as residential accommodation for part or all of their period of ownership.  On disposal, the individual is entitled to relief at the lower of:

  • the amount of PPR relief available
  • the chargeable gain arising from the letting
  • £40,000
As it currently stands, there is no requirement for the individual to occupy the dwelling whilst they let it out. However, for disposals on or after 6 April 2020, letting relief will only be available for the periods in which the individual has had shared occupancy with their tenants. 

In reality, only a small fraction of those currently claiming lettings relief are living in the property during the period of letting, so following the changes from 6 April 2020 the majority of those currently qualifying will no longer be eligible for the relief. There is no apportionment for periods prior to 6 April 2020. Individuals could be losing out on as much as £40,000 of tax relief against property disposals.

In addition to the above changes, the definition of ‘job related accommodation’ will be amended to include those who are serving in the armed forces and, whilst not occupying their home, receive payments from the Ministry of Defence which they use to pay for accommodation.

Given these changes, those clients who are considering selling their PPRs or let property previously used as the PPR, might want to consider, where commercially possible, bringing forward their plans to maximise the availability of reliefs.
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12 Feb 2020

Non-UK resident companies carrying on UK property business

The rental profits of UK property businesses generated by non-UK resident companies currently fall within the UK Income tax (IT) regime, with profits charged at a rate of 20%. However, from 6 April 2020, such profits will fall within the UK Corporation Tax (CT) regime, which is currently charged at a rate of 19%.