Date09 Oct 2020
CategoryTax, Private Client
Back in July 2020, the Chancellor, Rishi Sunak, asked the Office of Tax Simplification to undertake a review of Capital Gains Tax (“CGT”). One of the Chancellor’s objectives of the CGT review is to simplify the taxation of chargeable gains. For most people, one of the key events that require them to consider the implications of CGT is when they sell their home. Anyone selling their only or main home, provided that they have lived there throughout its ownership, would qualify from main residence relief (also known as Principal Private Residence (“PPR”) relief) on the full amount of the gain thereby mitigating any CGT. However, if there is any period of absence, there is a potential exposure to CGT, and interpreting the law and calculating the capital gain can become complicated.
We have already seen changes to PPR relief available to homeowners in the last few years with the most significant change introduced from 6 April 2020, but would the government go further? There is currently no restriction on the amount of PPR relief available so that whether the sale of your home generates a gain of £100,000 or £1 million the entire gain would be free from CGT.
Feedback to date suggests that the Chancellor is not in favour of a brand-new Wealth Tax but perhaps an introduction of a restriction on PPR relief in some shape or form could be plausible. The restriction could be by way of a limit on the amount of relief available, a lifetime cap or perhaps abolished all together. Furthermore, they may contemplate the withdrawal of the ability to make main residence elections, instead basing the relief on actual occupation.
The Chancellor will also need to consider carefully the timing of introducing such a change. The Stamp Duty Land Tax/Land and Buildings Transactions Tax holiday for house purchases below a certain level has been introduced in July to revitalise the property market and the introduction of a restricted PPR relief could work against this.
With this country’s love affair with homeownership, this would be a brave move but with the PPR relief worth around £26.7 billion (according to the National Audit Office), changes to this relief will help fund some of the recent spend by the Treasury. If the relief is pitched at the right level the general public may be unaffected and may still allow the relief to be reformed for simplicity but enabling the tax to target the wealthy.
What does this mean for you?
If you are a homeowner, a potential change to the PPR relief could lead to a future exposure to CGT. Furthermore, a charge to CGT on a sale of residential property means a requirement to file a CGT return and pay the tax within 30 days of sale.
With all this on the horizon, now is certainly a good time to review potential disposals and look at the timing of these. For further information, please contact a member of our tax team or your usual Azets contact.