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Another Blow for Landlords

08-Nov-2018

Another Blow for Landlords

The 2018 Budget has introduced two changes that will affect landlords that have previously used their rental property as their private residence.  

At present the landlord is able to take advantage of some substantial reliefs against the Capital Gains Tax arising when the rental property is sold, however following the 2018 budget these will be withdrawn as of April 2020. 

Firstly, the final period exemption is being reduced from 18 months to 9 months from April 2020.  The final period exemption means people do not have to pay Capital Gains Tax on gains made in the final months of ownership, even if they are not an owner-occupier during that period.   (Special rules that give those in or moving into care homes, and people with a disability, 36 months of exemption will not change.)

Secondly, lettings relief is being withdrawn and will only be available to those who are in shared occupancy with a tenant. Previously you were able to claim up to £40,000 (£80,000 for a couple) of lettings relief on a property that had at some point been the main residence. Whilst the rules on lettings relief are complex, the simple example below will help to illustrate the point:

Example:  Sunnydale Cottage was your main home for 3 years.  You then moved into a larger property and decided to let Sunnydale out, letting it for a total of 7 years.  After 10 years ownership you have now decided to sell Sunnydale.  Your capital gain on the sale without reliefs or annual exemptions is £100,000.

If you sell before April 2020 and take full advantage of Private Residence Relief, lettings relief and your full annual exemption (£12,000), a higher rate tax payer would expect to pay capital gains tax of £840.

If you sell after April 2020, taking advantage of the reduced Private Residence Relief and your full annual exemption, a higher rate tax payer would now be looking at a capital gains tax bill of £14,140.

Of course all circumstances are different but if you have concerns and would like us to calculate the impact that these changes may have on your potential capital gains tax please get in touch.

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