In response to reports that the Government may remove Principal Private Residence Relief for homes worth over £1.5 million in the next Budget, James Ward, Head of the Private Client Practice at law firm Kingsley Napley, comments:
“Reports today indicate that Rachel Reeves is looking at ending Principal Private Residence Relief for houses valued at over £1.5 million at the next Budget. The removal of this exemption, combined with potential increases in Stamp Duty, an inevitable further increase in Capital Gains Tax rates at some point during this Parliament and any limitation on gifting, would, I expect, have a dramatic negative impact on the UK property market. Instead of looking to downsize and pass assets to the next generation, we may see the older generation sitting tight in their property for the next few years to see how the political landscape unfolds in 2029.
It also is another illustration of baby boomers being tasked with the job of filling the UK’s fiscal black hole. We should not be entirely surprised given the £5 trillion transfer of assets expected from that generation over the next 20 years and the attraction of looking to tax that as far as possible, but some pretty radical changes to long-established taxes are being proposed.
For those who have been in their property for decades, the prospect of having to pay Capital Gains Tax on a sale could trigger a substantial liability, not least as they will undoubtedly struggle to dig out the paperwork for any historic work carried out to offset against the gain.
Our clients are certainly concerned about this upcoming Budget, as they were with the last one, and we have had a raft of new enquiries over the last month. I would imagine this will only increase once the holiday season is over.
What can be done to combat any tax rises is a hard question to answer as we do not have a crystal ball, but I tell my clients not to let tax dictate their whole succession policy and to consider what is best for the next generation and the one below. However, sensible and significant steps can be taken now and should be completed before this Budget if possible, such as gifting assets and considering the use of trusts.”