Principal Private Residence Relief and Lettings Relief changes due in April 2020

The start of the next tax year in April 2020 will see key changes come into effect in respect of Principal Private Residence Relief (PPR) and Lettings Relief, both of which can be used to soften the impact of Capital Gains Tax (CGT) on property disposals.

From next April, Lettings Relief will be restricted to property owners who share occupancy of a property with their tenant. At the moment, people who let a property that either is currently or used to be their main residence and who sell it can claim relief of up to £40,000, with double that being available to a married or civil partnered couple.

At the same time, the Final Period Exemption (FPE), which means that people do not need to pay CGT on the gains made in the final 18 months that they owned the property, will be cut to just nine months.

There are special rules available that do not affect people moving to care homes and people with a disability that are not affected by the changes.

Link: Principal residence relief final period exemption

Employment Allowance to be restricted from next year

At the moment businesses and charities of all sizes can benefit from Employment Allowance. However, from the start of the new tax year in April 2020, the allowance will only be available to employers with a secondary National Insurance Contributions bill in the current tax year of less than £100,000.

Employers need to ensure that they update their payroll systems accordingly and cease to select any options within payroll software indicating that they will claim the allowance if they are no longer eligible.

Furthermore, in circumstances where an employer becomes connected with another employer that is excluded from Employment Allowance as a consequence of their secondary Class 1 bill having exceeded £100,000, they will also become excluded.

Required information regarding Employment Allowance must be provided to HM Revenue & Customs (HMRC) using the Employment Payment Summary (EPS) of the Real-Time Information (RTI) system.

Link: From April 2020, the employment allowance is to be restricted to those with only secondary class 1 National Insurance Contribution of less than £100,000

HMRC outlines changes to Capital Gains Tax treatment on second homes

From April 2020, the date at which Capital Gains Tax (CGT) must be paid on a second home property disposal is changing.

After this date, taxpayers will only have 30 days to file their return and make an advance payment towards their tax bill.

This differs drastically from the current rules, which allows people to pay CGT on the disposal of a property up to 22 months after the sale as part of the self-assessment cycle.

These changes have been known for some time, however, recent research by HM Revenue & Customs (HMRC) suggests that the level of awareness of the CGT changes remains low, with many taxpayers confused about the new rules.

In its report, HMRC said that both individuals and intermediaries, such as accountants, reviewing HMRC’s policy documents had found it “difficult to understand due to long paragraphs containing financial terminology and unfamiliar terms related to CGT”.

“As a result, neither audience felt confident that they had fully understood the policy changes and felt they would need to refer to a professional for clarification,” HMRC concluded.

Links: Capital Gains Tax communications research