Selling homes faces unexpected tax bills

Individuals who were in the process of selling their homes could face unexpected tax bills if the government and HM Revenue & Customs (‘HMRC’) do not delay or cancel the changes to main residence relief, says leading tax and advisory firm Blick Rothenberg.

Nimesh Shah, a partner at the firm said: ‘There is a ‘cliff-edge’ change happening overnight on 6th April 2020 where the relief is being halved. Those that were in the process of selling their home and are now prevented from doing so could face unexpected or higher tax bills.

‘At the very least, the government and HMRC need to delay changes until next year, if not scrap them completely.

He added: ‘HMRC had previously confirmed the changes to the main residence relief rules would come into effect from 6th April 2020.

‘Under the present rules, the last 18 months of ownership of the property count as ‘deemed occupation’, but this is being halved to nine months from the start of the new tax year. This rule exists to give people sufficient time to move out of their home and sell it without a capital gains tax (‘CGT’) charge arising.

‘Even before the COVID-19 crisis, there was widespread criticism of HMRC’s decision to halve the final period to nine months, with many suggesting the timeframe was too short and could bring many transactions into the scope of CGT.

‘It is quite common for people to have a gap when moving home. People move into rented accommodation to test a new area or believe it is better to be “chain-free” to speed up the eventual moving process, so their former home would be unoccupied for a period.

Nimesh concludes that: ‘Last week, the government published guidance encouraging people to delay buying or selling homes in light of the COVID-19 crisis. Following the government guidance and wider economic climate, the housing market has effectively ground to a halt, making it almost impossible for property transactions to go through.’

Sean Randall, a partner at the firm said: ‘There is also a separate and similar impact on people claiming SDLT refunds where they previously moved home and suffered the additional 3% SDLT surcharge.

‘Broadly speaking, the SDLT rules allow you to claim a refund of the 3% SDLT surcharge if you sell your former home within three years of buying your new home.

Randall, takes the view that: ‘People who were in the process of selling their former homes and expecting to receive a refund may have lost that opportunity now because the three-year timeframe will pass.

‘In the same vein, HMRC needs to consider extending the window to take account of the present situation, so that people who had planned for an imminent sale are not left out of pocket.’


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