Tax changes for property owners. HMRC are removing lettings relief from 6 April 2020. They will also reduce the final period exemption by half. These changes to Capital Gains Tax (CGT) will have ramifications for those selling or renting property.
When you sell a property that you live in, your are not subject to Capital Gains Tax. This is because you are covered by the Principal Private Residence Relief (PPR).
Lettings relief was introduced in 1980. This allowed people to let out spare rooms in their property without losing the benefit of principal private residence relief. If you sell a property that is not your main home you are liable for Capital Gains Tax (CGT). However, if the property was once your main home the CGT would depend on how long you lived there and how long it was rented out.
The First Tax Change for Property Owners
Currently, you don’t have to pay tax for the years you have lived in the property. You would also benefit from an additional exemption for the last 18 months that you owned the property whether you are living there or not. The first of the tax changes for property owners is the reduction of the final period of exemption from 18 months to 9 months. There are no changes for people who are disabled or selling for the purpose of moving to a care home. In these instances the last 36 months will remain exempt.
The Second Tax Change
The second of the tax changes for property owners is the loss of lettings relief. This means when a property owner moves out of the property and lets it to tenants they will not be entitled to claim lettings relief. At present the letting relief is the lower of
- the amount of PPR
- the gain while the property has been let out; that is not covered by the PPR
- £40,000
You can see that letting relief provided up to £40,000 (£80,000 for a couple) to those landlords who rent a property that was previously their main residence. So for some landlords, this will be a huge loss.
This reform means that lettings relief will be restricted to property owners who are in shared occupancy with their tenant. This effectively abolishes it for buy-to-let purposes.
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