Individuals who were in the process of selling their homes could face unexpected tax bills if the Government and HM Revenue & Customs (‘HMRC’) do not delay or cancel the changes to main residence relief, say leading tax and advisory firm Blick Rothenberg.
Nimesh Shah, a partner at the firm said: “There is a ‘cliff-edge’ change happening overnight on 6 April 2020 where the relief is being halved. Those that were in the process of selling their home and are now prevented from doing so could face unexpected or higher tax bills.
“At the very least, the Government and HMRC need to delay changes until next year, if not scrap them completely.”
He added: “HMRC had previously confirmed the changes to the main residence relief rules would come into effect from 6 April 2020. Under the present rules, the last 18 months of ownership of the property count as ‘deemed occupation’, but this is being halved to 9 months from the start of the new tax year. This rule exists to give people sufficient time to move out of their home and sell it without a capital gains tax (‘CGT’) charge arising.
“Even before the COVID-19 crisis, there was widespread criticism of HMRC’s decision to halve the final period to 9 months, with many suggesting the timeframe was too short and could bring many transactions into the scope of CGT. It is quite common for people to have a gap when moving home. People move into rented accommodation to test a new area or believe it is better to be “chain-free” to speed up the eventual moving process, so their former home would be unoccupied for a period.”
Nimesh said: “Last week, the Government published guidance encouraging people to delay buying or selling homes in light of the COVID-19 crisis. Following the Government guidance and wider economic climate, the housing market has effectively ground to a halt, making it almost impossible for property transactions to go through.”