It is an area which we have covered before, but it is worth us reminding you of the upcoming tax rules changes for Landlords.
With effect from April 2020, things are changing for Landlords. From this date, HMRC are changing the rules and there are significant cuts to two valuable property tax reliefs.
If you are thinking of selling your Buy To Let (BTL) property either now or in the future, which at some stage you have lived in as your main residence then these new rules will affect you.
Currently, individuals are not required to pay capital gains tax (CGT) on any gains made when selling a property which they lived in as their main residence throughout their ownership, a benefit known as Private Residence Relief (PRR).
What is changing?
There are some lesser-known reliefs that extend the benefit of PRR to people in certain circumstances. For Landlords, one example is the final exemption period, which actually gives a CGT holiday on the final 18 months of owning a property, regardless of whether an owner is actually living there at the time. So the last 18 months before sale are deemed occupation.
The final exemption period is intended to protect those who move to a new home but are unable to sell their old property immediately.
The change in rules from next April means that the period for this CGT exemption will halve from 18 months to just nine months.
Another change that was also announced was a restriction to lettings relief. This allows landlords who previously lived in the property they subsequently let relief of up to £40,000 from CGT when they sell the property.
This already generous relief rises to £80,000 for a married couple who jointly own the property.
From 2020, this relief will only be available to landlords who are in shared occupancy with a tenant which makes claiming this relief after this date extremely unlikely for most.
What does this mean to me?
The simple answer is that for those facing this situation may want to rearrange their affairs by selling their BTL, previously occupied property sooner rather than later to take advantage of the current 18-month CGT exemption and the letting relief reduction. The changes in rules almost certainly will mean that additional tax will be payable on sale. If you are a higher rate taxpayer, just the loss of letting relief can mean additional tax of £11,200.
From a tax point of view, losing £40,000 of tax relief per person and nine months from the occupancy could be the difference between selling and keeping hold of the property.
What can you do now?
We can assist with the preparation of Capital Gains Tax calculations for you, should you decide to sell before April and compare those to what the tax would be after the new rules come into force. Even if you were not thinking of selling, it may be of interest to know the tax position with these calculations.
Don’t leave your decision until it’s too late. On average, the selling process of a property is 3 months, but importantly, for CGT purposes, it is the date of exchange which is relevant, so should you exchange contracts In March 2020 but complete in April 2020 you will still be governed by the old rules.
If you may be affected by these changes, and would benefit from an initial conversation around this subject, contact us today to arrange a FREE consultation, we have Chartered Accountants and Tax Advisers in Canary Wharf, Essex and Manchester waiting for your call.