PRR Proposals Could Place Unfair Burden on New Expats
HMRC proposals to dispense with private residence relief (PRR) could be a stumbling block for expat's wealth management plans as significant amounts of capital gains tax relief could be lost if the proposals become law.
What is Private Resident Relief?
Private residence relief (PRR) is a relief that allows taxpayers to sell their homes without incurring capital gains tax (CGT). However, to qualify for PRR the property must have been the taxpayer's main residence at some point during the 18 months prior to the property being sold (the final exemption period).
What is being proposed?
HMRC are proposing that the final tax-free period of 18 months is cut to nine months. It claims that reducing the qualifying period will prevent landlords from fraudulently claiming the relief in order to reduce their CGT liability.
What are the criticisms?
The Chartered Institute of Taxation (CIOT) has expressed concern that homeowners whose properties take a long time to sell could unwittingly and unfairly become subject to a much larger CGT liability.
Aparna Nathan QC, Chair of CIOT's CGT & Investment Income Sub-committee, commented in a press release, "If HMRC have serious concerns about abuse of the PRR, they could consider conducting a broader consultation about the objectives and effectiveness of the relief." *
Nathan noted that HMRC should provide evidence of their evaluation to establish that nine months is sufficient time for genuine house sellers to complete a move to a new property particularly in the light of regional variations in property values and market.
Expat financial advisers are also keen to ensure that new expats do not become disproportionately affected by any new rules. It can take a long time to move from the UK to a residence abroad, and this can sometimes result in a protracted property sale process.
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Disclaimer: Blacktower Financial Management is not a tax adviser and independent tax advice should be sought. The above does not constitute advice.