The Finance Bill 2020 confirmed the Government’s proposals to reduce the tax exemption applying to the main home. The changes will net the Government £470 million.
Under the current rules, a homeowner can move out of their property and they have 18 months to sell the property before CGT becomes relevant. From 6 April 2020, that 18-month period is being halved to nine months. Five years ago, the final period exemption was 36 months, and the latest rule change restricts the relief much further, say leading accounting and tax advisory firm Blick Rothenberg.
Nimesh Shah a partner at the firm said: “Strangely, you still have 36 months to sell your former home for the purposes of reclaiming the additional 3% SDLT. It seems bizarre that there is one policy for CGT and something different for SDLT – why not align both to make the overall tax regime simpler?
He added: “Interestingly, HMRC’s consultation response suggested little support for the change from contributors, a statement from the consultation response said ‘The majority thought that reducing the final period exemption to nine months was too short.’ The consultation response actually only sites one contribution in favour of the measure. In my view, it once again highlights the failings of the consultation process, given there appears to be widespread criticism of the measure, only for HMRC and the Government to ignore that feedback and proceed to introduce the new legislation.”
Nimesh said: “Thankfully, main residence relief still remains (albeit in a restricted form) despite some speculating in recent years that it could abolished altogether or subject to a capped amount.
He added: “Another major change to the rules is to ‘lettings relief’, which can be worth up to £11,200 in CGT. The current rules provide for additional relief where someone rents out their home. From 6 April 2020, the rules are being restricted so that it only applies where the homeowner occupies the property with a tenant – currently, there is no need for the owner to live in the property so they could move out, rent their home and benefit from the relief. The original consultation document noted that ‘lettings relief’ was introduced in the 1980s to encourage people to rent out spare rooms in their homes, without it affecting main residence relief. It has taken HMRC and the Government close to 40 years to conclude that the rules, as originally designed, did not achieve that purpose and are now acting to make the change. I am somewhat sceptical that this is the real reason for the change, and the rule change makes it clear that the Government want to restrict its availability. In my view, it would have been far simpler to abolish the relief completely.”
The Government estimates it will generate an additional £470 million over the next 4 years from the two changes. It is yet another change to the taxation of UK property, which continues to generate significant returns for the Government.
The Government’s proposal to introduce an additional 1% SDLT for foreign purchasers – originally a policy put forward by Theresa May, will not be included in next year’s Finance Bill.
Sean Randall, a partner at the firm said: “The 1% stamp duty surcharge for non-resident buyers of residential property will not be included in next year’s Finance Bill but will be included in a future Finance Bill.
He added: “ The news is double-edged: on the one hand it gives respite to foreign buyers and to house-builders who rely so much on foreign buyers for off-plan purchases; but on the other hand the unequivocal confirmation that it will be introduced will cause concern. Cynics might say that the Government is stalling until the UK exits the EU for fear of passing legislation that contravenes EU law. But the reality is probably merely that more time is needed to draft the legislation. The consultation only ended two months ago. The prime central London housing market can breathe a sigh of relief, for now.’