The Chancellor's recent decision to reduce tax breaks for those who rent out a former home is badly timed and could knock the fragile housing market recovery, tax experts have warned.
In his recent Autumn Statement, George Osborne cut the tax-free period for people who turned their former homes into buy-to-let investments from 36 months to just 18 months when they sell.
This is expected to leave many accidental landlords facing a "substantial" tax charge.
The Association of Taxation Technicians (ATT) has questioned whether now is a sensible time to halve the length of time for which someone can get principal private residence relief (PPR).
It warned that someone who relocates, for example to take up a new job, could face a CGT charge if it takes more than 18 months to sell their old house.
This applies even if they are renting rather than buying a new home in the meantime.
Individuals who are disabled or in a care home and with no other property on which they can claim private residence relief will continue to get the 36 month final period exemption.
The ATT welcomes this exception but said other categories of taxpayer may also deserve special consideration.
President Yvette Nunn said: “When the state of the property market was poor and many people were experiencing difficulty in selling their property, the period qualifying for exemption after vacating the property was increased to 36 months.
"To halve the exemption period now when the property market is still far from buoyant across much of the country could well leave individuals in exactly the same difficulties.
"There is also the concern that a reduction in the exemption period will have a damaging effect upon the rate of sales within the UK property market."
Nunn accepts that the exemption is open to abuse, as individuals with multiple properties at home and abroad might ‘flip’ their principal private residence for tax purposes, but said the government must understand how this move might hit labour market mobility.
“On a more positive note, preserving the 36 month period for disabled persons and those who are resident in long term care is sensible and welcome."
Comments