There are 2 big changes coming in from April 2020 that will affect anyone selling a property that is now rented out but that has once been your main home.
Rental properties that have never been the landlord’s main home do not get these reliefs anyway, and are therefore not affected.
- REDUCTION IN THE FINAL PERIOD EXEMPTION
When you sell a property, you pay capital gains tax (CGT) on the profit you make. CGT is paid at the rate of 18% or 28% on residential property transactions depending on your tax bracket.
At the moment you don’t have to pay any CGT for the years you lived in the property, plus an additional exemption for the final 18 months that you owned it, even if you weren’t living there at the time.
For example, if you have owned the property for 10 years, lived in it for 6 years and then rented it out for the last 4 years, you would not pay CGT on 7.5 years of ownership – or 75% of the gain.
But from April 2020 this final period exemption will be cut to 9 months. This means in the above example, after April you will not pay CGT on 6.75 years or 67.5% of the gain.
(There will be no change to the 36 months available to disabled people or those in, or moving into, a care home.)
- ABOLITION OF LETTINGS RELIEF FOR MOST LANDLORDS
The other change is arguably a bigger deal and involves lettings relief, which currently provides up to £40,000 of relief (£80,000 for a couple) to people who let out a property that is, or has been in the past, their main home.
From April 2020, lettings relief will only apply where the owner actually SHARES OCCUPANCY of the home with a tenant – effectively spelling the end of this tax relief for most people!
The relief will not be available at all for properties sold after 6 April 2020 – there are no transitional rules allowing you to claim it for the years up to April 2020 – it is simply going!
If you are therefore currently selling or thinking of selling a rental property, that has previously been your main home, then this needs to be sold before 5 April 2020 if you want to keep your lettings relief, and the current 18 month final period exemption.
For more information, please contact Rosie Forsyth of Wilkins & Co.