Autumn Budget changes to Capital Gains Tax – what they might mean down on the farm
Tuesday, 11 December 2018
Among the more minor changes introduced in Autumn Budget 2018 were some proposed alterations to the capital gains tax (CGT) regime, which were labelled as “Private residence relief: reform of ancillary reliefs.” These have been seen primarily as a further attack on the private residential lettings market. The moves, which will take effect from April 2020, will reduce the exemption for the final period of ownership. Also, where the property has at some point been the owner’s main residence but has also been let for a period of time, we also see “lettings relief” disappear.
Currently the gain arising in the last 18 months of ownership is exempt, but this will reduce to nine months (until April 2014, the period was 36 months). The “lettings relief” that was an additional deduction from the capital gain, which could have reduced the gain by up to £40,000 for each registered owner, will also give rise to more occasions where capital gains tax may be payable.
The value of these reliefs can be significant, particularly where a property has made an appreciable gain in a relatively short period of ownership. Nonetheless, they were originally introduced to alleviate hardship. In the case of the final period relief, it would apply typically where owners had a short period where a new house was purchased but it took time for the old one to be sold, often covered by a bridging loan. The lettings relief exempted part of the gain during a period of letting. Under the proposed changes, lettings relief will apply during a period of shared occupancy with a tenant.
It’s not difficult to see why these reliefs are now seen as a way of enabling private landlords to reduce their CGT liability, but it will now bring a new area of complexity to many property transactions outside the simple “move out – move in on the same day” variety.
From the agricultural perspective, circumstances which could now give rise to a higher tax charge will include:
- Farm cottages which are used for a number of purposes over their ownership, including main residence, employee occupation and residential letting.
- Inter-family property swaps, where different members exchange houses across the farm to reflect their particular family circumstances – these can be complex at the best of times.
- Holiday letting of annexes that form part of the main residence will become more complicated and much will depend upon the physical construction of the building. Calculations could prove complex and will need to involve previous usage and planning/rating correspondence. It seems likely that farmhouse B&B lettings, on the other hand, should continue to enjoy the lettings relief, since there will normally be an element of shared occupancy.
One positive development is that the proposed income tax reform of rent-a-room relief (involving lettings within your main residence) has now been shelved.
Legislation for the CGT changes will take effect from April 2020 but there will a brief period of consultation over the next few months.
Finally, from April 2020, CGT on residential property sales will become payable within 30 days of completion. Most commentators anticipated huge practical problems in gathering and agreeing valuations, which will be difficult and time consuming for the more complex transactions that are likely to give rise to chargeable gains. The Chancellor has, however, now announced that reasonable estimates of values and apportionments can be applied in order to compute provisional gains before the payment date.
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