As part of the Chancellor's Autumn Statement, the Coalition Government have announced today that Principal Private Residence Relief (PPR) will see a reduction in the final period exemption (from 36 to 18 months), effective from April 6th 2014. For those of you that don't know what PPR is, it is the relief from Capital Gains Tax (CGT) that applies when we sell our own homes, and for eventualities where people have have a period of overlap (not uncommon over the last few years) there has always been three year window in which you are still exempt.
Under the current rules a property that has been a person’s private residence in the past, even though they may not be living in the property at the time they sell it, and where they are claiming PPR on another property at the same time, can benefit from the last three years being tax free.
Halving this final period exemption from 36 months to 18 months makes sense to the Government who wishes to reduce the benefits of reliefs available to second home owners. It will however make life more difficult for anyone moving home who is unable to sell their first property within 18 months of buying their new home. The original rule when CGT (and PPR) was introduced in 1965 was for 12 months. This was increased to 24 months in 1980, so the Chancellor is taking us back to limits that last applied over 30 years ago!
As I have mentioned above, since 2007-08 we have seen a lot of "accidental landlords", those who needed to move, but couldn't sell their existing property and so rented it out. Normally this is a short term position and these "accidental landlords" will sell within the 36 month window. The three year rule was introduced in 1991 so that those trying to move house (particularly those moving to follow work) are not disadvantaged when it is difficult to sell a house in a property slump. Given what we have seen of the last few years resulting from the deep recession, will a reduced 18 month window really be enough?
It is also interesting to note that the Government expect to raise considerably more from this measure than the measure to tax the gains on non-resident second home owners, indeed they expect that the revenue from this measure by 2016/17 is expected to be £90m, whereas the yield from the CGT application to non-residents is expected to be £15m.
It is also interesting to note that the Government expect to raise considerably more from this measure than the measure to tax the gains on non-resident second home owners, indeed they expect that the revenue from this measure by 2016/17 is expected to be £90m, whereas the yield from the CGT application to non-residents is expected to be £15m.
Overall this is something which can only be seen as an opportunistic attack on those who have found themselves in this position as a result of the economic climate over the last few years. The fact that it snuck under the radar in the main speech would seem to back that up.
It will also be interesting to see how many MP's get caught out when "flipping" their family and official residences!
