1 Nov 2018

Budget changes in CGT rules- what they might mean down on the farm

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Among the more minor changes introduced in Budget 2018 were some proposed alterations to the CGT regime which were labelled as “Private residence relief: reform of ancillary reliefs”. These have been seen primarily as a further attack on the private residential lettings market and the moves, which will take effect from April 2020, will reduce the exemption for the final ownership period of a partly exempt property from 18 months to 9 months (until April 2014 the period was 36 months) and will also restrict the lettings relief which applied when a property was partially let and partially owner-occupied during the period of ownership.

The value of these reliefs can be significant, particularly where a property has made an appreciable gain in a relatively short period of ownership. Nonetheless, they were originally introduced to alleviate hardship. In the case of extended final period relief, it would apply typically where owners had a short period where a new house was purchased but it took time for the old one to be sold, often covered by a bridging loan. The lettings relief normally applied where part of a property was let whilst the owner was in residence, but the wording would also include a period of letting during an ownership which included main residence. Under the proposed changes, lettings relief will apply in the former circumstance only.

It is not difficult to see why these reliefs are now seen as a way of enabling private landlords to reduce their CGT liability, but it will now bring a new area of complexity to many property transactions outside the simple “move out – move in on the same day” variety.

From the agricultural perspective, circumstances which could now give rise to a higher tax charge will include:

  • Farm cottages which are used for a number of purposes over their ownership including main residence, employee occupation and commercial letting
  • Inter-family property swaps where different members exchange houses across the farm to reflect their particular family circumstances – these can be complex at the best of times.

Holiday letting of annexes which form part of the main residence will become more complex and much will depend upon the physical construction of the building. Calculations could prove complex and will need to involve previous usage and planning/rating correspondence. It seems likely that farmhouse B & B lettings, on the other hand, should continue to enjoy the lettings relief since there will normally be an element of shared occupancy.

One positive development is that the proposed reform of Rent a Room relief from an Income Tax angle (involving lettings within one’s main residence) has now been shelved.

Legislation for the CGT changes will take effect from April 2020 but there will a brief period of consultation over the next few months.

Finally, although not strictly a Budget announcement, the changes in the CGT payment date for gains on residential property sales will take effect from April 2020, after which date CGT will become payable within 30 day of completion. Most commentators anticipated huge practical problems in gathering and agreeing valuation aspects, which will typically be difficult and time consuming for the more complex transactions that are likely to give rise to chargeable gains. The Chancellor has, however, now announced that reasonable estimates of values and apportionments can be applied in order to compute provisional gains before the payment date.

To discuss this or anything else, please contact Andrew Perrott on 01793 818300 or send him an email