tax

Half a million landlords impacted by changes to capital gains tax

New rules for capital gains tax means that some landlords could see their costs increase significantly when they come to sell their former homes.

Landlords who previously lived in a property but then let it out can currently claim capital gains tax relief on the property for up to 18 months after they have moved out. From April 2020 this relief drops to just nine months, which could affect up to half a million landlords.

The tax break was originally introduced to help accidental landlords – those who had to move for work, for example, and were unable to sell their home or chose to rent. It stood at 36 months until 2014 when it was reduced to 18 months.

Capital gains tax on second properties

Capital gains is a tax charged on the profit made on an investment property when it is sold. Landlords expect to be taxed on the difference between the price the property was purchased for and the price it sold at. For landlords that rent a property that was once their main home, capital gains tax applies on the amount the property increased in value when they weren’t living in it.

Under the current rules, a landlord that has owned a property for 13 years and lived in it for six would only be taxed on five years and six months of gains; from April 2020 they will be liable for taxation on six years and three months.

Gordon Andrews, tax and financial planning expert at Quilter, said: “The government expects to net an additional £470m over the next five years in additional tax revenues as a result of this change. It means that owning a second home becomes slightly less profitable for those that rent out a property they previously lived in.”

Month of change

The rule change means that holding onto a property when you move home in the hope to benefit from rising house prices later down the line, will be less attractive to some. However, married couples will see a benefit as a spouse or  civil partner can now inherit the relief. Previously they would not have been entitled to the relief unless they had personally lived in the property.

April 2020 is a month of change for landlords that previously lived in their rental properties long-term as the government scales back lettings relief. Currently £40,000 of their gain is exempt from capital gains tax when they sell their former home after renting it out, for couples it’s £80,000. However, from April 2020 only landlords that have lived in the property with their tenants will qualify for this benefit.

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

STAY AHEAD OF THE MARKET

Sign up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates
Manchester property investment

FIRST FOR NEWS AND KNOWLEDGE.

Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:

 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

 

+852 6699 9008

Open from 9am-6pm HKT