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Tax implications of a static property market; what the Autumn Budget did to slow it a bit more

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By Caroline Foulger

In a static property market it often becomes harder to bring a chain together when selling your home. If you can afford to, you may be tempted to break the chain and purchase your new home prior to selling your current one. You may then consider renting out the property and selling it when the market improves.

The decision to buy a new home before you have sold your current one has always had cost implications, such as bridging finance and the expense of running two properties. The Autumn Budget has now increased the tax implications of making this decision.

Any increase in the value of your home is usually fully relieved from Capital Gains Tax (CGT) by principal private residence relief (PPR). If you move out of your home and sell it within 18 months, this period will still benefit from PPR. From April 2020, this grace period between moving out and sale to which PPR applies will be reduced to 9 months.

If you decide to rent your former home after you have moved out, letting relief for CGT will probably relieve some or all of the gains not covered by PPR. From April 2020, this relief is restricted to operating only if you are in actual occupation of the property with the tenant. The CGT implications of letting a property that was previously your home will become significant in 2020 and if you are currently in this position, selling prior to April 2020 may be something to consider.

You also need to be aware that an additional stamp duty land tax charge, at 3%, will apply to the purchase, if this results in the ownership of two residential properties. If you sell the former home within 3 years of the purchase, since 29 October 2018 you now have 12 months from the sale to claim a refund of the surcharge, rather than 3 months.

The Autumn Budget therefore added some tax complexities which will impact on the decision of whether it is practical to buy your new home before you sell your current home, especially with the prospect of a slow moving property market on the horizon. These tax implications should be carefully considered before making such a decision, especially if under pressure to move.

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