Last year, proposals were put forward to change the amount of letting relief available to landlords when selling their properties, and if it goes ahead in April property owners need to be prepared.
The next Budget is set to be announced by Chancellor Sajid Javid on 11 March, and it could solidify the government’s plans to overhaul the way property owners can claim capital gains tax relief on rental homes they used to live in. The changes could mean that some landlords will need to foot a higher bill when selling off a rental property.
However, the move is being criticised by some in the industry as too harsh and too sudden, with suggestions that it should instead be phased in to reduce its impact on landlords. This would also lower the risk of affected landlords rushing to sell their properties before the deadline in order to avoid the added costs.
How the tax relief is changing
An individual can currently claim up to £40,000 in capital gains tax lettings relief, while a couple can claim £80,000 from the amount of profit made on the sale of the property, if they once lived in it. However, if the changes come into effect as described in April this year, this relief will only apply if the owner remains in shared occupancy with the tenant.
Further to this, the final period exemption of 18 months – where the past 18 months that the property was owned, regardless of whether it was rented out, is exempt from tax – is to be lowered to nine months, further reducing the amount of tax relief that can be claimed on any capital gains.
The government is also implementing new rules that mean the capital gains tax bill must be paid within 30 days of the completion of sale of the property, rather than in the following tax year as is currently the case.
Objections to the changes
The Association of Taxation Technicians has come forward to propose a phasing in of the changes rather than an “overnight” overhaul at the end of this tax year.
Michael Steed, co-chair of the ATT’s Technical Steering Group, said: “Someone who was entitled to the maximum letting relief under the old rules, but sells on 6 April 2020, could be up to £11,200 worse off than if they had sold a day earlier on 5 April 2020. At the same time, they will also be subject to new rules – which have already been legislated – requiring them to pay that tax much earlier than they would have previously.
“We recommend that if the shared occupation change to lettings relief goes ahead, any entitlement built up under the old rules should be frozen and preserved at 5 April 2020, with the new conditions only applying to let periods after that date. This should help to avoid the cliff edge effect and avoid the retroactive effect of the policy.”
When the spring Budget is announced in March, and it should reveal which of the government’s plans will be put into action over the coming year. Those in the industry are hoping for a softening towards the buy-to-let sector and landlords, with potential stamp duty reforms to get the market moving again.