Capital Gains Tax Update

Principal Private Residence Relief – Knocking down relief brick by brick.

A little over a year ago in the 2018 Budget, the then Chancellor of the Exchequer, Phillip Hammond, declared the Government was committed to keeping family homes out of Capital Gains Tax. He went on to say some aspects of the current Principal Private Residence (PPR) relief extend beyond that objective and provide relief for people who are not using the home as their main residence.      

The result was the announcement of two important changes affecting the availability of PPR relief in two critical areas. Namely, the reduction of the final period exemption to nine months, and a restriction of Lettings Relief to owners in shared occupancy with the tenant.

Separately, new rules have been introduced that will require UK residents to report disposals of residential property, and pay any associated capital gains tax liability, within 30 days of completion.

These changes shall come into force on 6 April 2020 and will affect all home and residential property owners.

Principal Private Residence Relief

Since the announcement, the draft Finance Bill has been published and the Government has responded to a number of searching questions raised through a Consultation. Despite the widespread concern about the heavy impact the changes shall have, they look set to be introduced unaltered from 6 April next year.

A more detailed explanation of the changes is outlined below.

Final period exemption

Under current legislation, provided the owner has occupied the property as their main or only residence at some point during their period of ownership, the final 18 months of ownership is deemed to be occupied for PPR purposes and attracts full relief.

From 6 April 2020, this deemed occupation period shall be reduced to just 9 months.

The primary purpose behind this provision is to provide home owners with a period of time to sell their main home after moving into a new property.

The Government’s view is nine months is more than an adequate timeframe to dispose of a property. The reality is local effects on the housing market and other external factors, such as relationship breakdown, can lead to significantly longer periods.

Disposals made by disabled persons, or persons in Care Homes are not affected by this change and continue to have a final exemption period of 36 months.

Lettings Relief

Lettings Relief is an extension of PPR relief and was introduced in the 1980s. Currently, it provides relief to owners who, at some point, have occupied the property as their main or only residence, but have also wholly or partly let the property as residential accommodation.

The relief is particularly valuable in its present form since the entire property, or a distinct part of the property, can be let without the owner occupying the property themselves. On a disposal, the part of the gain attributable to the let period attracts relief and can exempt gains of up to £40,000 per taxpayer; effectively lowering capital gains tax by as much as £11,200 per taxpayer. The relief is available on an individual basis and joint homeowners can enjoy double the benefit.

From 6 April 2020, Lettings Relief will only be available for those periods when the property has been let and the owner has occupied the property as their main residence throughout that time.

In other words, relief will only be available if the homeowner and tenant have been living in the property at the same time.

This is a significant change that will severely reduce the availability of the relief to a very small number of homeowners. In addition, there are no transitional rules and many homeowners will find that properties that will attract relief if sold on or before 5 April 2020 will no longer attract relief if they are sold from 6 April 2020.


The full impact of the changes can be illustrated with an example that many property owners will recognise.

A married couple purchased a house on 6 April 1995 for £250,000 and lived there for 15 years. They moved out of the property on 5 April 2010 and immediately started to rent it out. They are looking to sell the property in 2020 and expecting sales proceeds of £600,000.

Date of Sale 5 April 2020 6 April 2020
Less cost(£250,000)(£250,000)
PPR (15 years occupation)(£210,000)(£210,000)
PPR (final period ownership)(£21,000)(£10,500)
Lettings Relief (x2)(£80,000)
Gain after PPR relief£39,000£129,500
Capitals Gains Tax (at 28%)£10,920£36,260


The severity of the impact of the changes to both the final period exemption and availability of lettings relief cannot be underestimated. The reality is that many property owners will find they will now have a capital gains tax liability on a sale when they did not expect one before, or the size of the liability will be greater than perhaps budgeted for.

The tax impact will be compounded further by the introduction of the short 30-day timeframe in which to both report the disposal and pay the capital gains tax liability to HM Revenue & Customs.

The PPR legislation is currently draft and may therefore be subject to change. However, there have been no indications from the Government that there will be any changes and it would be sensible to assume none are forthcoming.

What should you do?

We would encourage all home and property owners to undertake a review of their own position and identify the exposure to tax under the new rules. Where appropriate, action could be taken to accelerate a disposal or otherwise crystallise a chargeable gain to secure the current levels of relief before 6 April 2020.

Contact us

If you would like to discuss any of the above points, or for further information, please speak with your usual Baldwins contact or with one of our property tax experts.