Advisers have been warned to be ready for the new capital gains tax rules affecting property transactions, which come into force in 2020.
Under the rules, which take effect from April next year, a home owner who moves their primary residence from one house they own to another, will have nine months to sell the first property, or else they will have to pay capital gains on the sale of the first home.
This is due to changes being introduced to the primary residence relief, a tax break that applies to an individual selling their main residence.
A condition of receiving this tax relief has been that the property being sold has been the primary residence for the previous 18 months.
On July 11, the government cut this time period to nine months, meaning that if an individual has moved to live somewhere else, the tax relief stops applying after nine months, so if the house is not sold by then capital gains tax applies at the usual rate.
The rate is 18 per cent on residential property gains up to the basic tax rate limit, then 28 per cent thereafter.
Brian Slater, chair of the Chartered Institute of Taxation's property taxes sub-committee, said nine months was sufficiently short a time period for individuals to find themselves paying the tax.
He said: “Many home owners are still unaware that the final period exemption was reduced from 36 months to 18 months in 2014.
"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.”
Paul Hornby, of tax advice firm JF Hornby and Co, said: “Perhaps the scariest thing here is that once again, the government has been woefully inadequate in their communication of this critical change.
“Time and again, we find ourselves having to deal with distressed clients, who have been caught out by a change in the tax regime which they had no awareness of.
“Storm clouds are gathering once again and I predict many people will be caught out by this unfair change in the system.”
HMRC has been approached for comment.
david.thorpe@ft.com
