Budget 2018: CGT blow for homeowners

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The tax-free gains made when selling your own home came under fire in the Budget, with two changes to restrict the scope of the capital gains tax (CGT) relief for the main residence.  

A gain made on selling a residential property is subject to CGT at 28% (18% for basic-rate taxpayers). However, the gain relating to any period in which the owner occupied the property as their main home is exempt (aka principle private residence relief: PPR). This PPR exemption is extended in a range circumstances where the owner may not have been in occupation. Two of those extensions to PPR are under attack in this Budget.

Lettings relief

Where the property has been let at any time, each owner can claim lettings relief to reduce the taxable capital gain. This relief can cover gains of up to £40,000 per owner, but it is only available if the property has been the owner’s main home for a period. The relief is also capped at the amount of PPR relief due for the period of actual occupation by the owner.

The government is proposing to restrict lettings relief to cover only periods in which the owner is also occupying the same property “in shared-occupancy”. This seems to undermine the whole point of CGT lettings relief, as if the owner is in occupation then the gain for that period of ownership is covered by PPR anyway.

Homeowners who move and then let out their former home will be hit by this change in CGT relief.

Last few months

Sometimes the homeowner moves out of their home before it is sold. If they leave the property before contracts for the sale have been exchanged, the gain accruing for the final period when the owner is not occupying the property, and a sale has not been agreed, would be subject to CGT.

Currently, PPR relief is extended for 18 months to cover that last period of ownership. This last period relief was reduced from 36 months in April 2014, but the 36 month period of PPR exemption was retained for owners who move into a care home or who are disabled. 

The government is proposing to cut the PPR exemption for the last period of ownership (when the owner is not in occupation) to just nine months. However, the 36-month exemption period will be retained for disabled owners or those who live in residential care.  

These changes to capital gains tax (CGT) are due to come into effect from 6 April 2020, but there will be a consultation on the details first.  

 

Need a handy summary of all the major measures from Budget 2018? Visit our at a glance guide.

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

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By Ruddles
30th Oct 2018 08:26

Agreed re the letting relief. As I’ve said elsewhere the relief is likely to be in point only where a room or rooms has/have been let to the exclusion of the owner. This is going to result in additional calculation of a fair and reasonable apportionment to establish the gain attributable to letting. Tax simplification? Ha.

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to Ruddles
30th Oct 2018 08:44

Wouldn't surprise me if there are amendments as it passes through the committees.

It's all too airy-fairy.

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By Ruddles
to lionofludesch
30th Oct 2018 09:08

Probably. But as I also said elsewhere, I never got the point of the relief in the first place. Perhaps the proposed change is to reflect Parlaiment's original intention.

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30th Oct 2018 15:36

So how will this affect a householder who left his PPR in 2006 after 14 years living in it, lets it for 14 years, and sells it in 2020.

One would like to think the letting gain up to budget day would be allowed to stand, but the point mustn't be overlooked.

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31st Oct 2018 09:57

Yet a further example of Government's myopic tax greed to fuel their inherent profligacy!

CGT is a totally iniquitous tax in the first place. Price Inflation is caused by Government's utter incompetence to operate the economy properly.

All real asset values rise in lockstep with monetary inflation: which is caused, directly, by overprinting money and failure to discipline financial services.

When CGT was first introduced, by Wilson, it was intended ONLY to ensure capital gains from trading activities be taxed, as speculators were shifting activities into capital gains as against income and thus avoiding tax.

Progressively, CGT's scope was widened as Government's became evermore desperate for money to waste!

Thus CGT, now, is simply and only a tax levied on the public against the results of Government's own incompetence.

Switzerland, Hong Kong, Malaysia, Singapore, New Zealand, amongst a host of obvious tax havens, have no capital gains tax in principle.

Idiots such as Hammond forget, many people are compelled to live elsewhere (Pub Managers; Vicars etc) and obviously let their home to defray costs. Changes of job or tenure may well mean temporary residence in the main home, until the next placement.

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By ShayaG
to Michael C Feltham
31st Oct 2018 11:41

I heartily disagree with this.

"Yet a further example of Government's myopic tax greed to fuel their inherent profligacy!"

There is no evidence that the private sector delivers public services more efficiently. Look at the PFI disasters, the collapse of Carillion, and the broken US healthcare system (the NHS is a middling performer on international leagues).

"CGT is a totally iniquitous tax in the first place. Price Inflation is caused by Government's utter incompetence to operate the economy properly."

a) Some assets inflate more than others.
b) Zero inflation is not desirable, as it reflects a stagnant economy with no investment opportunities and hence no sensitivity to the price of money.
c) The biggest policy lever over inflation - central bank interest rates - is not controlled by the government.

"All real asset values rise in lockstep with monetary inflation: which is caused, directly, by overprinting money and failure to discipline financial services."

House prices have risen ahead of general inflation. There's no evidence that quantitative easing has affected house prices, though there is evidence that it has cut the coupon on corporate bonds (i.e. - I agree with you on that narrow point).

"Idiots such as Hammond forget, many people are compelled to live elsewhere (Pub Managers; Vicars etc) and obviously let their home to defray costs. Changes of job or tenure may well mean temporary residence in the main home, until the next placement."

What costs? What about the people who bought a house 30 years ago for £35,000, and can now sell it for £700,000?

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to ShayaG
31st Oct 2018 18:41

Clearly, you love CGT

Now, why do you believe the Thatcher government brought in Indexation?

"House prices have risen ahead of general inflation. There's no evidence that quantitative easing has affected house prices, though there is evidence that it has cut the coupon on corporate bonds (i.e. - I agree with you on that narrow point)."

Did I say it had? Conflation of argument.

The core reason house prices have risen to idiotic level, has been Gordon Brown's total failure to control consumer borrowing; "Liar" loans (Self-Certs) and mortgage lenders competing on a specious value market, and offering LTVs up to 140%: tenors of 40 years etc.

The old rule of thumb was a mortgage borrower could expect a loan of X3 of Gross Salary: work this out! It is wholly dysfunctional; and therefore, not sustainable.

"The biggest policy lever over inflation - central bank interest rates - is not controlled by the government."

Nice idea! Forget the MPC; Base Rate et al, is set according to the political economy. If Base Rate rose to its correct level, then Britain would collapse!
Also ask how and why there is a serious disparity between Sterling LIBOR and Base Rates and why the spread between deposit rates and borrowing rates is so vast?

By 2003, the ONS annual state of the UK's capital report, demonstrated clearly, in excess of 66% of the TOTAL Capital Value of the UK was represented by residential house values!! Ludicrous situation.

Personally, having been invested in speculative residential property and weathered (And lost serious capital) through three Boom-Busts driven by inflated asset values (Heath-Barber: Thatcher-Lawson: and finally the Daddy of 'em all, Blair Brown), I fear you are seduced by false metrics.

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