The Chartered Institute of Taxation (CIOT) has urged HMRC to communicate upcoming capital gains tax changes which will introduce new and increase existing tax bills for some home sellers from April 2020.
Private residence relief (PRR) is a relief from capital gains tax (CGT) when a homeowner sells their home.
The relief ensures that the proceeds of the sale of the home are not reduced by a capital gains tax charge.
Brian Slater, chair of CIOT’s property taxes sub-committee, said: “HMRC need to put the ‘PR’ into ‘PRR’ and publicise these changes effectively.
“Many homeowners are still unaware that the final period exemption was reduced from 36 months to 18 months in 2014.”
Provided the property has been the owner’s main residence at some point during ownership the last 18 months, known as the ‘final exemption period’, almost always qualifies for relief even if the owner has moved out in order to allow for delays in selling.
The government has confirmed that period will reduce to nine months from 6 April 2020.
Slater added: “A further reduction to just nine months is likely to bring more property disposals within the scope of CGT.
“Whilst the average time to sell a property is around four and a half months, there will be many exceptions due to regional variations, separation and divorce, and other complexities.”
Lettings relief will also be changing on 6 April 2020 as it will be limited to defined circumstances in which the owner shares occupation of their house with a tenant.
Slater continued: “The practical effect of these changes will be that very few sellers will qualify for lettings relief if they sell their home after 6 April 2020.
“Any ‘accrued’ letting relief will be lost, as no apportionment can be made between gains attributable to pre and post 6 April 2020 disposals.
“The government needs to consider its communications plan around these changes carefully.
“For example, simply updating guidance on GOV.UK is inadequate, and direct communications will be important to help ensure sellers are aware of the new rules.
“This is vital given the separate new requirement from April 2020 to report the disposal and pay any capital gains tax within 30 days of completion.”
CIOT has welcomed the government’s announcement that the introduction of a stamp duty land tax (SDLT) surcharge for non-UK resident property owners will not be included in the next finance bill.
Slater concluded: “We are concerned at the increasing complexity of tax rules that touch on residential property.
“SDLT has been the subject of technical change in virtually every year since its introduction in 2003.
“In our response to the consultation on this proposal we encouraged the government to refrain from making further changes before the impact of other recent changes has been properly assessed and the evidence base for the surcharge evaluated fully.
“We are pleased they have listened and delayed the implementation of this proposal.”