Lettings relief reforms set to strip tax advantages from landlords

The Treasury has launched a new consultation in regards to changes to Capital Gains Tax lettings relief as set out in the Autumn Budget 2018.

As announced last year, lettings relief will be reformed so that it is only available to those who are in shared occupancy with a tenant.

As part of these changes, the final exemption period will be reduced from 18 to nine months. The current 36-month period for those with a disability or in care will not change.

Likewise, this change will not affect Private Resident Relief (PRR), which keeps main residences out of Capital Gains Tax (CGT).

It will instead focus on the ancillary lettings relief, which currently provides up to £40,000 of relief (£80,000 for a couple) to those who let out a property that is, or has been in the past, their main residence. This means that individuals can claim the relief on a property even if they have not lived in it for a long time.

From 06 April 2020, however, this relief will only be available to those who are in shared occupancy with a tenant. This change will not affect owner-occupiers or landlords who have never lived in the property they are renting out.

The 18-month final period exemption also means people do not have to pay CGT on gains made in the final year and a half of ownership, as long as the property has been their only or main residence at some point.

HMRC is also looking to reduce the 18-month final exemption period, arguing that the “long exemption period means that more relief can accrue on two properties (an unsold one and a new one) simultaneously”.

This is “out of line with the intention of the exemption”, it says, which is meant to protect those who move to a new main residence but are unable to sell their original home immediately.

The consultation, found here, closes on 1 June 2019.

For advice on how these proposed changes might affect you, please get in touch with our expert property tax team.

Posted in Property News.