Tax relief cut for multiple home owners
If you have more than one home, you should be aware that the value of a useful capital gains tax (CGT) relief has just been cut.
Final period relief used to be exempt from CGT for the last 36 months of ownership. Now the exemption only applies for the last 18 months. The change applies where contracts have been exchanged on the property in question after 6 April 2014.
The change should not present a problem if you only have one property and continue to live there, but it will make a difference if you buy a new property before selling the old one.
Your main home is exempt from CGT, but only one such property qualifies. Therefore if your ownership of two or more properties overlaps, you can choose which one will qualify for the main residence exemption. Of course, to qualify as your main home you must live in the property, so properties that have always been rented out are fully taxable. A problem can arise when you get married or enter into a civil partnership because a couple can only have one exempt property between them.
The difference that the change will make will depend on the amount of your gain when you sell your old home and also how long you owned it.
For example, you make a gain of £100,000 on a house that you have owned for 20 years, after living there until the last five years before you sold it. Until April, a total of 18 years would have been exempt (15 years when you lived in it plus the last 3 years final period relief). So just £10,000 of the gain would have been taxed – less than the £11,000 annual exempt amount. Now, only 16.5. years are exempt (15 years when you lived in it plus the last 1.5 years final period relief); so £17,500 of the gain would be taxable.
There is, however, one situation where final period relief remains at 36 months, and this is for people moving into care. The logic is that it may take longer to dispose of a property in these circumstances.
Certain other periods of absence are also exempt, and these are unchanged.