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Private Residents Relief

Question

My client has sold a residential property, it was originally his main residence and then it was let out for a period of time. I have worked out that the private residence relief (including last 18 months) and lettings relief do not fully cover the period of ownership so there is a chargeable gain.
What rate is this charged at as I have read contradictory information, some stating that it will be charged at the rates of 18% and 28% and other that implies the lower rates of 10% and 20% respectively will be charged as it qualified in part for private residents relief?

Answer

The gain in relation to your client will be charged at the higher rates in line with legislation was introduced in the Finance Act 2016 Part 4 Section 83 to amend TCGA1992 Part 1 Section 4.

The new CGT rates of 10% and 20% were introduced for disposals on or after 6 April 2016 but do not apply to transactions involving residential property or carried interest. The information publicised by HMRC was ambiguous as it stated:

This measure reduces from 6 April 2016 the 18% rate of CGT to 10% and the 28% rate of CGT to 20% for chargeable gains, except in relation to chargeable gains accruing on the disposal of residential property (that do not qualify for private residence relief). This was interpreted by some that if any element of private residence relief was due the lower rates would apply.

When looking to the legislation the rates are reduced by the words in section 2 being substituted:

(a)  in respect of upper rate gains accruing to a person in a tax year, is 18%, and
(b)  in respect of gains accruing to a person in a tax year which are not upper rate gains, is 10%

Additionally, there was the insertion of section 2A defining the meaning of ‘upper rate gains’ as:

(a)  residential property gains (see section 4BB)
(b)  NRCGT gains (see section 14D), and
(c)  carried interest gains (see subsections (12) and (13))

When reviewing section 4BB the legislation only talks about a disposal of UK residential property interest, or a disposal of a non-UK residential property interest. It does not differentiate between property that is a private residence or not so the higher rates will apply where a gain is partially covered by private residence relief.

Julie Rose – Vantage Tax Consultant

September 2017

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