Expats with homes to sell in the UK can expect to pay more capital gains tax if the deal does not go through before the end of the financial year.
The government is changing capital gains tax rules to scrap generous tax breaks for owners selling a property where they once lived but is now rented out or used as a second home.
From April 6, the final exemption period – the 18-month tax-free period of grace given to all owners as private residence relief (PRR) – drops to nine months.
And lettings relief is stopped, doing away with a tax break worth up to £40,000 for each owner.
Lettings relief abolished
To benefit from existing rules, owners should exchange contracts on a sale by midnight April 5 at the latest.
After April 6 , 2020, lettings relief is only available for properties shared by an owner and a tenant as their main home.
“Many home owners are still unaware that the final period exemption was reduced from 36 months to 18 months in 2014,” said Brian Slater, who chairs the Chartered Institute of Taxation’s property taxes sub-committee.
“A further reduction to just nine months is likely to bring more property disposals within the scope of CGT. Whilst the average time to sell a property is around four and a half months, there will be many exceptions due to regional variations, separation and divorce, and other complexities.
Buy to let more expensive
“The practical effect of these changes will be that few sellers will qualify for lettings relief if they sell their home after April 6, 2020. Further, any accrued letting relief will be lost, as no apportionment can be made between gains attributable to pre and post 6 April 2020 disposals. Again, this change brings more disposals within the scope of CGT.”
The changes do not alter the current CGT rules for expats – only the exemption period and lettings relief are impacted.
The measure will increase CGT for any owner who has previously lived in a property as their main home then rented the home out as a buy to let.