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30th October 2018

Budget traps for Homeowners and Business Owners

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The increased income tax allowances are helpful, but there were a few less publicised points to watch out for. 1.Selling your home (or former home) after 5 April 2020 is more likely to result in paying Capital Gains Tax (CGT). This is for two reasons.

It is Principal Private Residence Relief ( PPR) which exempts our home from tax on sale. That is subject to restrictions, in particular where there have been periods of non-occupancy. The first is the reduction in the tax-free period allowed after you move out and before sale. If you are temporarily renting, or bridging, that tax-free period is going down from 18 months ( previously 36 months) to 9 months. For those moving into care the period remains at the generous 36 months.

The second reason is that at present if you kept a previous home and let it out, there was a tax relief called “letting relief” which exempted up to £40,000 of the gain on eventual sale. For sales after 5 April 2020 that will no longer be given in most cases and the extra tax could be £11,200.

Will this encourage sales before 2020?

2. Business owners currently benefit from Entrepreneur’s Relief (ER) when they sell – it is a relief similar to the old Retirement Relief. It has been very generous and can shelter up to £10 million of gains at the 10% rate. Perhaps too generous? The ownership time period will increase from 1 year to 2 years for sales after 5 April 2019 and as of 29 October 2018 the 5% ownership rule is tightened to include not just voting shares but also the right to profits and net assets – this applies immediately to all future sales to catch a tax dodge.

    For an overview of the Budget and more information please see our article by Emma Shipp.