The experts at Tolley have produced some back to basics guidance on the implications of changes to principal private residence (PPR) relief.
The advice follows the Autumn Statement announcement that the last three years’ exemption for PPR relief would be reduced to 18 months for disposals on or after 6 April 2014.
Tolley takes a look at one exception to the new 18 month rule plus three situations where taxpayers and advisers will need to give careful consideration to the rules.
It starts by explaining a new section of the Taxation of Chargeable Gains Act ensures that the last three years rule is retained for disposals by disabled persons or persons in care homes, provided that certain conditions are met at the time of disposal. “The timing of disposal is critical,” Tolley advises.
It then moves on to the first example, the impact on letting exemption.
Where a home has been let as residential accommodation then letting relief applies to the lower of the amount of the PPR relief, the gain arising by reason of the letting or £40,000.
In the example Tolley looks at how the reduction of the deemed period of ownership could impact on the letting exemption.
Tolley then moves on to the next example around PPR nominations and explains that if you have two residences at any one time, the facts will dictate which property is your PPR.
HMRC looks at a number of factors to decide where the main family home, however, the client can nominate his “factual” second residence as his PPR.
Tolley explains that planning with nominations is still valid but the 18 months rule will affect the amount of the tax savings at stake.
In the final section, the focus moves on to separating couples.
The 36 month rule provided considerable relief for couples separating, and not only did it benefit the marital home but also properties where the couple have previously resided but now let.
These will also be affected by the 18 month rule, says Tolley.
It added that calculations would be based on two scenarios - resolving within 18 months and resolving outside 18 months
The advice concludes that practitioners need to be aware of the change to 18 months and ensure that clients are aware to ensure that they do not inadvertently crystallise a liability to capital gains tax on their property.
For the article with working examples in full, visit the Tolley Hub on AccountingWEB.