April 2020 changes to private residence relief

The draft Finance Bill clauses and consultation outcome published on 11 July 2019 confirmed the government’s plans to:

  • reduce the final period exemption from 18 months to nine months (although the special cases in which the 36-month period applies remain unchanged); and
  • restrict lettings relief to cases where the owner is in shared occupancy.

Both of these changes will apply to disposals on or after 6 April 2020. ICAEW had responded to the consultation as ICAEW Rep 52/19, pointing out that these changes were retroactive. In the consultation outcome, the government justified its approach by stating that adding other rules, such as valuing the property at the point is marketed or retaining previous eligibility for lettings relief would add significant complexity. In terms of lettings relief, the consultation outcome suggests that taxpayers could rearrange their affairs under the current rules before 6 April 2020 to trigger the relief.

These are not the only changes to the ancillary reliefs that are included in the draft legislation. It also legislates:

  • extra-statutory concession D21 which allows for a late nomination of a main residence outside of the normal two-year window in certain circumstances; and
  • extra-statutory concession D49 which allows relief where there is a short delay in occupation in two cases.

ICAEW Rep 52/19 suggested some additional changes that could be made such as excluding properties in which an individual has no significant interest from the scope of private residence relief and covering the almost universal gap between exchange and completion on a property purchase. However, the government commented in its consultation outcome that in legislating these concessions, it does not plan to extend their scope.

Job-related accommodation relief is to be extended to members of the armed forces who receive an armed forces accommodation allowance instead of being required to live in service accommodation. This change won’t apply from 6 April 2020 and will instead take effect when the income tax exemption for the armed forces accommodation allowance comes into force.

The final change is to the way in which the spousal transfer rules apply. Currently, the recipient spouse or civil partner only inherits the transferring spouse’s ownership history if the property is their main residence at the time of the transfer. Where the transfer takes place on or after April 2020, the recipient will inherit their spouse’s ownership history regardless of whether the property is their main residence at that time. The rules will not retrospectively apply to transfers before that date. Therefore, where there is a disposal of a property on or after 6 April 2020 and there has been a prior inter-spousal transfer, care will be needed to consider which set of rules applied at the time of the inter-spousal transfer.

The draft legislation is open for comment until 5 September 2019. If you would like to contribute to any submission made by ICAEW, please comment below or contact sue.moore@icaew.com.