Now, when a home owner sells their principal private residence there is no charge to capital gains tax, subject to occupation rules and a restriction to 0.5 hectares for the size of the plot, as private residence relief (PRR) applies.
When the relief was introduced it was extended to cover a period of 12 months, from ceasing to occupy to actual sale.
Over the life of the relief this period has been 24 months and 36 months to reflect difficult market conditions, meaning it was taking longer to sell. The extension period is currently 18 months, unless the owner has left the home to go into a care home, in which case the period is 36 months.
In today’s (October 29) Budget, the Chancellor announced a reduction to nine months, retaining the 36 months final period exemption available to those entering a care home from April 2020.
It is to be hoped that the property market has picked up by 2020, otherwise several homeowners will find themselves subject to a capital gains tax charge when they eventually sell their home.Another relief often used by people who have had difficulty selling their home is lettings relief, whereby a maximum of £40,000 of gain per owner is exempt if the home has been rented out.
From April 2020, lettings relief will be reformed so it is only available where the owner and tenant are in shared occupation. Currently, if you just have one lodger, PRR is unaffected anyway, so presumably the change is for two or more tenants.
It is to be hoped that the property market has picked up by 2020, otherwise several homeowners will find themselves subject to a capital gains tax charge when they eventually sell their home.
Entrepreneurs' Relief
Entrepreneurs’ Relief (ER) was introduced in 2008 as a replacement for taper relief which, in turn, replaced retirement relief and in fact ER has much in common with retirement relief.
The original concept was to allow some tax relief to business owners who traditionally treated their business as their pension when they sold up and retired.
When ER was first introduced, the 10 per cent capital gains tax rate (CGT) applied to £1m of gains. The limit has now been increased to £10m and in 2017 to 2018 the relief cost the government £2.7bn.
The high cost of the relief led many to speculate that this Budget would bring about some changes to the relief and, indeed, it has.
Generally, to qualify for ER on the sale of a company the requirement has been that at least 5 per cent of the business and voting rights were owned by the vendor and that the vendor was an employee or officer of the company, and these conditions had to be met for at least a year before sale.
The changes announced by the Chancellor in the Budget are an attempt to refocus the relief on genuine entrepreneurs.
The minimum holding period is increased to two years for sales on or after April 6 2019.
In addition, from October 29 2018, shareholders must be entitled to at least 5 per cent of the distributable profits and net assets of a company to claim the relief in addition to the current requirements on share capital and voting rights.
Sue Moore is technical manager at the Institute of Chartered Accountants in England and Wales
