You might also be interested in
Replies (13)
Please login or register to join the discussion.
More exceptions to general rules! Why HMRC is working on a policy to MTC- making tax complex? Surely one objective for any Tax legislative or enforcement body is to MTS- making tax simple.
My recollection (yes I am that old!) of the lettings relief is that it was also to cover the situation where a person let their house while working abroad and then replaced it on or before their return to the UK without ever making it their main residence again. They now can also buy a property when working abroad and make it their main residence when they return, which they will not be able to do if these changes go ahead. Certain periods of absence can only be disregarded if the house is occupied as the main residence both before and afterwards.
"For many, this will increase the capital gains tax liability arising on the sale of a previously let property by £40,000."
Increase the gain, surely?
Just wanted to check I am understanding the last part correctly (transfer between spouses). In the example given the property was not lived in, they then moved in and then sold. Only the period from moving in to date of sale got PRR.
I assume then that if the position was the other way round, lived in by A as main res, moves out and rents, gets married, then transfers property to H/W. H/W "acquires" A's PRR for the initial period despite never having lived there. Am I understanding that correctly?
''For many, this will increase the capital gains tax liability arising on the sale of a previously let property by £40,000''
This is not true!
What they've done is snuff out a neat little trick where you could eliminate latent taxable gains (for example if the property hadn't always been your PPR) by transferring some or all of it to your spouse BEFORE he/she moves in and then live there long enough for the taxman not to be able to argue that it didn't qualify as a PPR "residence".
What that does is squeeze the whole gain since the property was acquired into the final period of residence, since the spouse would still inherit the base cost. If they live there continuously, even for just 2-3 years, the whole gain is PPR exempt.
It is a rather risky tactic though, as the taxman will fight tooth and nail to disallow PPR on the basis it was never intended to be an ongoing residence with the requisite degree of permanence and continuity. If he succeeds, then all the PPR is lost on the % of the property gifted.
When they talk about fairness, they mean fairness to the taxman, not to other taxpayers. A fairer solution would be for the transferee spouse to acquire the PPR history even if the transfer was made before he/she moved in. After all, the only reason they don't is because the first line of s222(7)(a) is written in in the present tense and Parliament may not have intended it to have that effect.
That would create a more level playing field, but it seems HMRC only quote that phrase when it suits them!
I note the consultation is still going on.
Take a taxpayer who moved into house in 1989, and it became her PPR. She moved house in 2001, and that became her PPR. She let the old house residentially. Under the old rules, she would have 12 years lettings relief, and 18 months relief at the end of ownership. from this, it would appear she has lost her lettings relief., and cost her £7200, assuming her cgt at 18%. This is unfair.
It would be fairer to apply the new rules from budget day, to preserve lettings relief up till then. This could be done on a time apportionment basis, or a rebasing to November 2018 on residential properties. Otherwise, we have retrospective taxation. We are not talking about arcane schemes of tax avoidance, in fact it is not avoidance at all, she is just an accidental landlady. There must be thousands like her.
Would it be legitimate avoidance to settle the property on her and her husband as joint tenants, with her to retain a life interest?
Yes it is unfair, and they are moving the goalposts, but it is not retrospective taxation any more than the new rules against contractor loan schemes are retrospective. The tax applies to a present or future event; ie. the gain in the case of the landlady and the on-going loan in the case of the contractor.
They are also being disingenuous in saying that it restricts letting relief to owners still in occupation, as they know full well that most people with lodgers are exempt anyway. Even those with more than one lodger are exempt if it is not a business in the proper sense of the word (although the taxman will try to argue that 1 is the limit). House shares, for example, are exempt.
What they are really doing is restricting letting relief to Rigsby and his like. In other words, those who run what are effectively boarding houses.
Thank you for your interest. I am glad we agree that the withdrawal of the relief is unfair.
You have compared my understanding of whether this is retrospective or not is like the contractor loan scheme. A lot of people seem to think the latter actually is retrospective, or at least ,retroactive.:
https://www.tax.org.uk/media-centre/press-releases/press-release-treasur...
When capital gains tax was introduced in 1965, it was designed to be effective from that date. There was either a time apportionment or you could elect to have the gain base on the increase from budget day value. This would be a preferrable approach.
I shall now search their website and see if they say anything about this development.
I am glad you agree that the withdrawal of lettings relief is unfair.
On the issue of the relief is retrospective , it seems some people think contractor loan schemes are retrospective, or at lease retroactive, including the CIOT. https://www.tax.org.uk/media-centre/press-releases/press-release-treasur...
Sorry, I seemed to have duplicated part of my reply to you.
But I have found this, from CIOT:
https://www.tax.org.uk/policy-technical/open-consultations/cgt-private-r...
Having retired some time ago, my own comment might not carry much weight. But I shall watch their site with interest.