Principal Private Residence relief (PPR) – ‘bolt-on’ periods to be radically reduced

PPR relief has been a highly valuable tax relief against the gains arising on the sale of a property that is or has been an individual’s only or main residence. The relief is essentially a time apportioned relief for periods of occupation of the property as a home, with a number of bolt-on periods where the property is deemed to have been occupied.

New rules due to come into effect in April 2020, introduce the tightening of two common extensions to the relief which is likely to increase the number of sales of homes liable to capital gains tax, or where more tax will be due. Although the government has agreed to a consultation process before final implementation, these changes look to be a fairly done deal.

  1. Final period of ownership

This was introduced with capital gains tax in 1965 to cover bridging periods when moving home. In more recent times, up until April 2014, the final 36 months would be covered, it then reduced to 18 months. From April 2020 this will reduce to 9 months. However, the final 36 months will continue to qualify for the disabled and those in a care home.

Family lawyers have particularly expressed concern as to the implications of these changes for separating couples, on the basis that financial settlements in matrimonial proceedings can take a considerable time, often involving lengthy negotiations over a duration of time exceeding 9 months and often over a year if the breakdown and resulting arrangements require the matter to be dealt with via court.

  1. Lettings relief

This is a relief for periods when all or part of the property has been let as residential accommodation which was introduced in the early 1980s to encourage job mobility. 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. From April 2020 it is proposed this will only apply when the owner is in occupation of the property along with the tenant.

The main criticism of this proposal is that 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. It is not yet clear how this change to letting relief will operate and the extent of its application. The fact is that value of the relief has been frozen since its introduction, so in real terms it has reduced in any case, but despite this, it is still worth up to £11,200 in tax.

Given the proposed changes, we would urge clients to seek advice who are likely to be affected by these changes to PPR relief as soon as possible. If you have any initial questions please be in contact with our in-house solicitor, Liz Hooley.