“Profits from the sale of property are exempt from Capital Gains Tax if it is your main home, meaning owner occupiers are not due to pay any tax if they sell the property for more than they bought it for.
“However, CGT might apply when you sell a property that isn’t your main residence, such as a holiday home or buy to let. The tax is a significant charge on the profits made from selling a second property, but some reliefs and exemptions apply. This includes private residence relief, which provides a reduction in tax if the individual originally lived in the property and then kept it as a rental after moving to a new home.
“Under the existing rules for residence relief, individuals can claim exemption from CGT for the time they spent living in the property, plus another 18 months of relief. But under the new rules, that will now reduce to the time spent living there, plus an extra 9 months. The change is small, but could mean affected individuals paying thousands of pounds in additional tax.
“The government expects to net an additional £470m over the next five years in additional tax revenues as a result of this change. It means that owning a second home becomes slightly less profitable for those that rent out a property they previously lived in. It is not uncommon for individuals to try and hold onto a flat, for example, when they move to a family home, in the hope that they can continue to hold it as a buy to let and eventually cash-in by selling the property and capturing a profit from rising house prices. These changes make that slightly less attractive.
“The rule changes do have some benefits for married couples. Where a spouse or civil partner inherits a second home on the death of their partner, the relief will now be transferable. They would previously have been entitled to no relief unless they have lived in the property themselves.”