New chancellor’s spring 2020 budget- what does this mean for property?
With the outbreak of the COVID-19 virus, the spring 2020 budget published under the new Chancellor, Rishi Sunak, is not being subject to the usual attention and scrutiny it should receive.
The budget has outlined various changes to the property domain, most of which will become in force from April 2020.
The current approach means that when a residential property (which is not used as the owner’s main residence) is sold, the owner has until the next self-assessment tax deadline to report the disposal and pay any tax owed to HMRC on the gain. The deadline is 31 January following the end of the tax year in which the disposal took place. For example, if the property is disposed of on 15 April 2018, the self-assessment deadline is 31 January 2020. This is because the disposal took place in the 2018-2019 tax year.
On or after 6 April 2020, UK residents who sell a residential property (not used as their main residence) owned in the UK may have to pay any capital gains tax owed to HMRC within 30 days of the disposal.
Letting relief applies to reduce the amount of capital gains tax an owner is liable to pay when selling a property in the UK. Currently, letting relief is available when an owner sells a property which was used as their main residence but consequently let it out at some point during ownership, before deciding to sell.
On or after 6 April 2020, letting relief will only apply where the owner occupies the property together with the tenant.
Private residence relief
When a property, which the owner uses a main or only residence is disposed of, any capital gains tax due is usually relieved in part or in its entirety by principal private residence relief.
The relief work to exempt any gains made in the periods of actual occupation and deemed occupation. Actual occupation is when the owner is residing in the property. Deemed occupation occurs when the owner is not residing in the property but should be treated as if they were.
Under the current rules, as long as the owner has used the property as their main residence, then the last 18 months of ownership (the final period of exemption) is treated as exempt deemed occupation for the purpose of private residence relief. This allows the owner to, for example, carry out necessary works to the property prior to the sale without occupying it and still benefiting from the relief for that period.
On or after 6 April 2020, the final period of exemption will be reduced from 18 months to 9 months.
Residence inheritance tax band
The nil-rate (taxed at 0%) band for inheritance tax purposes for a house used as a main residence will increase from £150,000 to £175,000 from 6 April 2020.