19 March 2019

Proposed reduction in main residence relief

Proposed reduction in the availability of main residence relief for CGT will see homeowners potentially exposed to further tax liabilities

Following on from the introduction of the LBTT Additional Dwelling Supplement charge in April 2016, which increased from 3% to 4% from 25 January 2019, proposed changes to the availability of main residence relief for capital gains tax from April 2020 will see homeowners potentially exposed to further tax liabilities when they move house and there is an overlap in the ownership of the new and old properties.

It is proposed that the final period of ownership that qualifies for the relief, will be further reduced from the current 18 months to 9 months for disposals taking place after April 2020.

The qualifying period has already been reduced from 36 months to the current 18 months with effect from April 2014.

Looking forward, it will be interesting to see if this is the final change or if this will be further reduced or even eliminated altogether in future.

What is main residence relief?

Main residence relief allows homeowners to avoid a charge to capital gains tax when the sell their only or main residence.  Residential property is subject to the highest rate of capital gains tax at 28% (or 18% for basic rate taxpayers) meaning that this is potentially a very valuable relief for many taxpayers.

The position is straightforward when the home is occupied throughout the period of ownership and full relief from capital gains tax would be expected in these circumstances.

But what if the home is not occupied by the owner for the full period of ownership?  The tax legislation also allows certain additional periods to qualify for relief where the property is not occupied.  One of these is the final period of ownership.  This is intended to recognise that a homeowner may experience a delay in selling their property and so may move out before a sale has been concluded.  Although this is often given as the main example where this may apply, it should be noted that this applies in all circumstances and is not limited only to a delayed sale of the old property.


The proposed reduction in the availability of main residence relief has the possibility to give rise to an unexpected capital gains tax liability when moving house.

Any proposed transactions should therefore be reviewed to ensure that the impact of this change is fully understood.