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Capital Gains Tax (CGT) Annual Exempt Amount
The tax free allowance for CGT will rise to £11,000 for 2014/15 rising to £11,100 for 2015/16 and subsequent years. The trust exemption will be £5,000 and £5,500 respectively.
Partial Withdrawal of Principle Private Residence Relief (PPR)
Currently, where an individual has owned a residential property and at some time it has been their main residence, in addition to the time that they actually occupied it, the proportion of gain arising during the final 36 months of ownership has always been exempt from Capital Gains Tax.
From 6 April 2014 the final 36 months tax relief will be reduced to 18 months.
For example:
Sally purchased a flat in 2010, and lived in it for two years. She then marries in 2012, moving into her marital home, but lets her first property. In 2016 she sells the flat realising a gain of £60,000. Tax rates are 28%.
Old rules:
PPR would have covered five of the six years of ownership, being the two years she lived there and the last 36 months before sale. Tax would have been £60,000 x 1/6 x 28% = £2,800, ignoring any other exemptions or reliefs.
New rules:
PPR only covers 3 ½ years, (two years of occupation and the last 18 months). Tax due is therefore £60,000 x 5/12 (2½ out of 6 years) x 28% = £7,000.
A tax increase of 150% in this example.
Small buy to let investors will particularly be affected, as will individuals providing property to friends and family.
Capital Gains Tax on property owned by non-residents
Currently, a non-resident individual is generally not subject to CGT on UK assets. Measures will be introduced from April 2015 bringing the sale of residential properties owned by non-resident individuals into the UK tax net.
Consultation will be published in early 2014 on how this is to be implemented. In many ways, this supplements existing legislation which taxes ‘enveloped’ residential properties held by companies and other corporate entities. From 6 April 2013, CGT was charged on the sale of enveloped properties valued over £2m. Whether the new legislation will also only effect high value properties will likely be considered during the consultation.
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