October 2018 – Autumn Budget & “principal private residence relief” Some tinkering at the edges

Author: Mitchells Roberton
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  • The Chancellor’s Autumn Budget has had its fair share of attention and summaries of its contents are readily available on the internet. The aim of this update is not to give an overview of the Budget but to focus on particular changes of detail affecting the relief for capital gains tax (“PPRR”) that applies to gains on sales of a “principal private residence”.
  • At present (1) PPRR may apply – to an extent – where a home is let out, and (2) in any case, the last 18 months of ownership gets an automatic exemption – even if the owner is not resident in the property at all in the last 18 months.
  • It is those two particular points that are modified in the Budget.  The modifications are mentioned at the end. First, the current position is outlined.


Capital gains tax 

  • The general rule is that if you dispose of an asset and make a profit which is not subject to income tax then this will be a taxable capital gain.
  • The starting point for the calculation of the gain is the price for the disposal of the asset from which you may deduct (i) the original acquisition cost of the asset, (ii) the fees incurred with lawyers and estate agents etc, both to acquire and to sell the asset and (iii) the costs of improving the asset incurred over the years will also generally be deductible. The first £12,000 of your gain will (for 2019/20) be exempt but beyond that CGT is payable.


  • Where however you own a home in which you have lived from when you first bought until you sell it then PPRR applies and no matter how great a gain you may have made it is not subject to CGT.


Lettings relief in relation to PPRR – at present 

  • To qualify for full PPRR the general rule is that you have to have lived in the home throughout your period of ownership. In principle – albeit subject to various important qualifications – PPRR is restricted on a time-apportioned basis if you have lengthy periods of absence from the home.
  • Where relief is restricted because the house has been let out as residential accommodation, a further relief known as “lettings relief” may be available to set against the chargeable gain that would otherwise apply because of the letting. The way this works is quite fiddly and may best be illustrated by an example.
  • For example, suppose an individual realises a gain of £50,000 on the disposal of a home which they owned for 15 years. They lived in the property for ten years and let the property out for the last five years. The last 18 months of ownership will qualify for PPRR under the automatic final period exemption.
  • Lettings relief will be whichever is the lowest of:

(1)          the PPRR that would be available ignoring lettings relief i.e. £50,000 gain ÷ 15 years of ownership x 11.5 years of residence (being 10 years of actual residence plus 1.5 years in respect of the final 18 months automatic exemption) = £38,333; and

(2)          £40,000; and

(3)          the gain relating to the let period (i.e. £50,000 gain ÷ 15 years of ownership x 5 years of letting out the property as a residence = £16,666).

  • So, the lettings relief available will be £16,666 – in addition to the PPRR available of £38,333.  In principle £16,666 + £38,333 = £54,999 which exceeds the gain. But the combination of lettings relief and PPRR cannot turn a gain into a loss so the result in this example is simply that there is no gain.

Automatic final period exemption – at present

  • As mentioned, the starting point is that if you have owned and occupied the home as your residence throughout then none of the gain is chargeable. But that requirement to have occupied “throughout” is relaxed when it comes to the final 18 months.
  • So if, for example, you have bought a replacement home and moved into it before you actually manage to sell your former home that won’t affect your qualifying for the full PPRR exemption – as long as your non-occupation of your former home doesn’t exceed 18 months.

THE CHANGES – tinkering at the edges 

  • The Autumn Budget changes are, in the words of the October 2018 Budget document (para. 3.41):

(1)          “To better target private residence relief at owner occupiers, from April 2020 the government will reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant.”


(2)          “The final period exemption will also be reduced from 18 months to 9 months.”

But these changes are not scheduled to come into effect until the tax year 2020/21. 

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Eddie Barry: Eddie@mitchells-roberton.co.uk

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