Press release: CIOT suggests review of private residence relief

The Chartered Institute of Taxation (CIOT) is suggesting to HMRC that the tax authority reviews the aims and use of the private residence relief (PRR) before planned cuts to the final exemption period.

Private residence relief (PRR) is a relief from capital gains tax when someone sells their home. The relief ensures that the proceeds of sale of the home are not reduced by a capital gains tax charge. One aspect of the relief is that provided the property has qualified for PRR at some point during ownership, the last 18 months (the ‘final exemption period’) almost always qualifies for relief, even if the owner has moved out, to allow for delays in selling.

The CIOT has responded to a recent HMRC consultation which proposes to restrict the availability of PRR for home owners by cutting the final exemption period from 18 months to nine months from April 2020. The objective is to tackle a perceived exploitation of the rules where individuals with more than one home can receive a final exemption period on both properties.

CIOT’s suggestion of a review echoes an Office of Tax Simplification (OTS) recommendation in 2011 that the conditions for PRR should be reviewed to test which are still appropriate and whether any can be streamlined and rewritten in a simpler format.

Aparna Nathan QC, Chair of CIOT’s CGT & Investment Income Sub-committee, said:

“If HMRC have serious concerns about abuse of the PRR, they could consider conducting a broader consultation about the objectives and effectiveness of the relief.

“It is important for HMRC to provide the evidence base that has been used to evaluate whether nine months is sufficient time for those who are genuinely trying to sell to move house particularly as there are likely to be large regional variations and differences depending on property values.

“We are concerned that these changes indicate a trend towards repeatedly whittling away this important but admittedly costly relief. Regrettably, a simple relief has become overcomplicated, with scope for taxpayers to go wrong. It is unfortunate that in situations other than the most straightforward, home owners need professional help to determine the availability of the relief and/ or the extent of their liability.

“Any new rules that are enacted must be straightforward and well communicated. There is a concern that many home owners may have a liability because they are unaware that the final period exemption was reduced from 36 months to 18 months from 6 April 2014.1 Better communication is vital given the separate new requirement from April 2020 to report the disposal and pay any capital gains tax within 30 days of completion.

“Given the policy intent more closely to target PRR at owner occupation, an alternative approach might be to link the final period exemption more closely to the period of owner occupation.”2

The changes to reliefs related to PRR are not expected to have any significant economic impacts for the Treasury, with expected savings of £150 million by 2023-24.3  HMRC’s Estimated costs of principal tax reliefs document January 2019 shows that CGT exemption of gains arising on disposal of only or main residence is estimated to be £27,200 million (£27 billion) in 2018/19.4

Aparna Nathan QC added:

“There are some circumstances where nine months will not be enough time to sell the family home. In the case of ‘no-fault’ divorce, where the property is to be sold, the time limits may prohibit a sale until a longer period than nine months has elapsed. Consideration should be given to whether an exception providing a longer final period exemption in these circumstances should be available."


Notes for editors

  1. The original rule when CGT (and private residence relief or PPR) was introduced in FA 1965 was for twelve months. This was increased to twenty-four months in FA 1980 with a further increase to thirty-six months in FA 1991 before being reduced to eighteen months for disposals after 5 April 2014 subject to the relief for disabled persons or care home residents (thirty-six months). We are particularly concerned that the new rules should be straightforward and well communicated.
  2. One way to do this would be to make the final period equal to the length of occupation as the main residence, but with a minimum period of nine months (or potentially less, perhaps down to three months) and a maximum of say, eighteen months or longer. That way someone who only bought a property for a short period, or someone who only elected a main residence for a short period before changing the election back to another property, would only receive a very short final period exemption. Conversely, those who have occupied a property as their main residence for a longer period would receive the existing eighteen months (or longer) in which to sell the property.
  3. Capital Gains Tax: Private Residence Relief: changes to the ancillary reliefs – HMRC p.17 (Assessment of Impacts)
  4. Estimated costs of principal tax reliefs (updated May 30 2019), p.1
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