row of houses

Private Residence Relief to be restricted from 6 April 2020

Nick Latimer, Partner, Private Clients
row of houses

Private Residence Relief (PRR) is a valuable relief that is designed to enable taxpayers to sell their main residence without having to pay Capital Gains Tax (CGT). Reliefs will be restricted from 6 April 2020.

Final period of exemption

The ‘final tax free period’ of exemption, which exempts gains even if you no longer occupy the property, was reduced from 36 months to 18 months in April 2014 as it was seen as too generous. The 36 month period was retained for owners who move into a care home or who are disabled.

From 6 April 2020, this 18 month period will be further reduced to 9 months. The 36 month period for those who are disabled or in care will remain.

Individuals looking to sell homes and benefit from the full 18 month period will therefore be keen to exchange contracts before that date or see potential increases in their tax liabilities.

Lettings relief

Lettings relief applies to those who let their main residence, and allows exemption on up to £40,000 of gains (per owner) in periods which would not otherwise qualify for relief.

Changes have been proposed to restrict the availability of lettings relief to periods where the owner is in 'shared-occupancy'. Given genuine shared-occupancy (for example renting-a-room in your house) is already normally exempted by PRR, this new letting relief is designed to cover arrangements that would not otherwise be covered, for example where a self-contained part of the dwelling house is let.

The loss of the relief will be retrospective to the extent that no benefit pre 6 April 2020 can be 'banked' for disposals after this date.  This means taxpayers letting a previous main residence could become exposed to an additional £40,000 of taxable gain (or £11,200 of tax for those paying 28%; the current top rate of CGT). In the case of jointly owned property where £80,000 of letting relief might have been expected, the additional tax could be £22,400.

Where the tax saving from lettings relief is significant, a disposal or gift before 6 April 2020 should be considered.

Transfers between spouses and civil partners

Transfers between spouses and civil partners for capital gains tax normally occur without tax.  

As the private residence relief rules currently stand, where one spouse makes a transfer of their main residence to the other, the receiving party’s period of ownership will be the same as that of the transferring spouse, even if that period started before their marriage. The receiving spouse also qualifies for private residence relief for any period before the transfer that the property qualified, so long as the property is the couple’s only or main residence at the time of transfer.  The consequences that arise may be due to timing rather than planning as relief depends on the recipient’s period of ownership, after the transfer regardless of the use before, which can give different results (See Example 6, provided in the original consultation).  In the same way, a transfer between spouses/civil partners of a property that is not a private residence “resets” the ownership period for private residence relief purposes, meaning a property which was previously let could qualify for full exemption on a future sale.

Example 6

George purchased a buy-to-let in 2010. In 2016 he married Nigel. They subsequently decided to live in George’s buy-to let as a main home and George transferred his entire interest to Nigel immediately before they moved in. No CGT was due on the transfer because George and Nigel are married.

The property was sold in 2020 and qualified for full PRR because during Nigel’s period of ownership the property had only been used as his main home.

The changes proposed by the government, which will apply from 6 April 2020, will ensure that the relief operated will reflect the reality of the use of the property by either spouse/ civil partner through the entire period of ownership.  In the example above, this would mean that Nigel would be treated as acquiring the property in 2010, and main residence relief would not apply for the period up to 2016.

Depending on the fact pattern, a spousal transfer could be effected before 6 April 2020 to make the most of existing rules, or delayed until after that date to take advantage of the new rules.


Over the next five years, the government expects to raise nearly £500 million from these measures, illustrating the current value of the relief and the importance to consider if any action is needed before 6 April 2020.

To discuss how the changes impact you, and what your options are going forward please contact your usual Crowe contact.

Contact us

Nick Latimer
Nick Latimer
Partner, Private Clients