April 2020 is set to bring more significant changes to the taxation of residential property held by individuals. This time, the changes impact how any potential capital gain is calculated and the timing of when the tax is paid to HMRC. 

There is still time for property owners to consider options for optimising their tax position and to plan ahead. So, what exactly are the new rules, and how can they prepare?

Since the introduction of capital gains tax (CGT) in 1965, principal private residence (PPR) relief has provided a valuable form of tax relief for owners of UK property. While some areas of the rules are fairly complex, in simple terms, if a property is, or has been, an individual’s main home for all or part of their period of ownership, then PPR will apply. This means that all, or some, of any gain on the property’s sale is treated as exempt from tax.    

For most homeowners who are selling the property where they have lived for the whole period of ownership, PPR means that 100% of profits on its sale are exempt from tax. This position is not changing. 

PPR also applies if the property has at some point been the owner’s main residence, even if this is no longer the case. Rather than 100% of the profits being exempt from tax, a proportion of any gain would be classed as exempt. From 6th April 2020, two significant changes to how the tax-exempt proportion must be calculated are due to come into force. It is important to note that PPR has never been available for properties that have been acquired solely for investment purposes (to be rented out) and have not been the owner’s main residence.