The two possible changes, announced in the Autumn 2018 Budget are:
The final period exemption was, for many years three years and was always intended to cover situations where the taxpayer was “bridging” and waiting to sell their previous residence. However, 36 months was felt to be too generous and was allegedly being abused by a strategy known as “second home flipping”. As a result, a couple of years ago the final period relief was restricted to the current 18 month period of deemed occupation. The latest proposal is to restrict further to 9 months although it will remain at 36 months for those with a disability, and those in or moving into care.
Lettings relief currently provides a further exemption for capital gains of up to £40,000 per property owner. The additional relief was introduced in 1980 to ensure people could let out spare rooms within their property on a casual basis without losing the benefit of private residence relief, for example where there are a number of lodgers sharing the property with the owner.
In practice lettings relief extends much further than the original policy intention and also benefits those who let out a whole dwelling that has at some stage been their main residence. It is those situations that the government appear to be attacking under the proposed changes.
Note that those who are renting their property temporarily whilst working elsewhere in the UK or working abroad are unlikely to be affected by this change as there are alternative reliefs available under those circumstances.
Please check with us if you are likely to be affected by the proposed changes as it may be worth considering disposing of the property before the new rules are introduced from 6 April 2020.