Budget 2018: principal residence relief final period exemption

Budget 2018 announced changes to two of the ancillary reliefs in private residence reliefs, specifically those that provide relief on rented property and on gains made in the final period of ownership, regardless of occupancy

From April 2020, lettings relief will be reformed so that it is only available to those who are in shared occupancy with a tenant. The final period exemption will be reduced to nine months.

Lettings relief currently provides up to £40,000 of relief (£80,000 for a couple) to those who let out a property that is, or has been in the past, their main residence.

This means that individuals can claim the relief on a property even if they have not lived in it for a long time.

From April 2020 the relief will change and will only be available to those who are in shared occupancy with a tenant. This change will not affect owner-occupiers or landlords who have never lived in the property they are renting out. 

There will be no changes to the 36 months final period exemption available to disabled people or those in a care home.

Final period exemption

Final period exemption currently means people do not have to pay capital gains tax (CGT) on gains made in the final 18 months of ownership, even if they are not an owner-occupier during that period.

A long exemption period means that more relief can accrue on two properties (an unsold one and a new one) simultaneously. The government stated that ‘this is out of line with the intention of the exemption, which is meant to protect those who move to a new main residence but are unable to sell their original home immediately’.

From April 2020, the exemption will be reduced to nine months. This is still twice the length of an average property transaction. The special rules that give those in or moving into care homes, and people with a disability, 36 months of exemption will not change.

These measures will raise £170m over the current parliament.

Private Residence Relief: changes to ancillary reliefs

Report by Sara White

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