As many will be aware, the government have restricted the tax relief available to landlords from increasing Land and Buildings Transaction Tax and restricting the amount of loan interest relief available against rental income.
From 6 April 2020 the government will now further reduce the deemed occupation period allowable under Principal Private Residence (“PPR”) relief and remove Letting Relief.
These measures could considerably increase the amount of Capital Gains Tax (“CGT”) an individual will pay following the sale of a property which was previously used as their main residence.
PPR Relief
Generally any gain realised on selling your home is exempt from CGT. The exemption applies to the period you are living in the property and also the final 18 months of ownership if you move out before you sell. This final period exemption was originally 3 years when it was introduced during a slump in the property market to assist people struggling to sell their former home after moving on to another. The exemption was reduced from 3 years to 18 months in 2014. However, from 6 April 2020 the final period exemption will reduce to just 9 months.
Letting Relief
Perhaps more importantly, a further relief known as Letting Relief is to be effectively abolished from 6 April 2020 (unless there is shared occupation). This is a valuable relief for people who let out their former main residence which can reduce the gain on sale by up to £40,000 for each owner.
The withdrawal and restriction of these reliefs could result in individuals paying over £13,000 more tax if a property is sold after 5 April 2020.
The property market isn’t exactly booming at the moment so this reduction seems premature.
If you are considering selling your property and would like some advice about your potential tax charges, please get in touch
