Warnings For Landlords Who May Fall Victim To Tax Overhauls
Warnings have been issued by a tax specialist to homeowners who rent out their second property.
Gary Priest, a partner at MFG Solicitors, has warned that property owners must prepare ahead of a ‘game-changing’ second property tax.
From April, the Government’s overhaul of the Private Residential Relief may mean that many who own more than one house will be paying higher taxes when they sell their property.
The current rules allow a landlord to take advantage of both lettings relief and final period exemption.
Currently, landlords who had previously lived in the house they let, were allowed CGT relief of up to £40,000 (£80,000 if the property was owned by a couple).
From April 2020 however, the relief will only be available to landlords who share residency with their tenants.
Final period exemption
If you sell a property you had previously lived in, you could take advantage for the private residence relief (PRR), which allowed an exemption from Capital Gains Tax (CGT) from any gains made in the final 18 months of ownership.
However, from April, the final period of ownership exemption will reduce to the final 9 months of ownership.
The two changes could mean a massive increases in costs to sell a property that was previously a home, especially for ‘reluctant landlords’ who may have rented out their previous property due to the slow down in the market and property prices finally beginning to recover.
Gary Priest said:
“With so much commentary around the country’s future in recent months it has been easy for people to have missed this looming change to property tax.
“The lettings relief was effectively a tax break but from 6 April this will be lost. The current arrangements see people receive capital gains tax relief up to £40,000.
“However, from April if you rent out a property that was formerly your main home, the tax relief will only go to landlords who are physically living in the property with their tenants.
“It’s a big change and it needs landlords to be financially prepared as owning extra properties may not be so attractive given the financial incentives drop.
“The only way to avoid the tax change is to sell the property ahead of the April change – an option that I am certain many will seriously consider.”