If you let out a property that was once your only or main residence and are considering disposing of this asset at some point in the future, it may be prudent to consider doing so before April 2020. This is because two generous tax reliefs are changing, one being withdrawn completely, the other cut in half.
Private Residence Relief (PRR), which allows an additional grace period of the last 18 months of ownership is being halved to nine months, whilst Lettings Relief is being withdrawn completely. If your property has increased in value since purchase, this could have a huge impact on your capital gains tax bill if you sell the property after 5 April 2020.
John McCaffery, Partner at chartered accountants Alexander & Co, explains “Currently, when you let a home that was once your main residence, Private Residence Relief is available for the amount of time you lived in it, together with an 18 month grace period up to when you sold it, regardless of whether you lived in the property during this period or not, even if it was rented out during this time.
“This means that if the value of your property have increased since you purchased it, you only pay capital gains on the remainder of the time, as percentage of the increase in value, less any tax allowable purchase and disposal costs (such as stamp duty, conveyancing fees and legal fees).
“More critically, Lettings Relief, which can be up to £40,000, per person, per property, is being withdrawn from April 2020. These two changes could mean that you could be liable for a considerable tax bill if you do not exchange contracts on a property before the end of the tax year (for tax purposes it is the date of exchange, not completion that is the key date to determine when a property is sold). Under the current arrangements, even a considerable increase in a properties value could result in a nil capital gains tax bill once these two allowances have been factored in.”
Exceptions to the changes are the 36-month period that PRR is available for disabled persons, or those in a care home, which will remain. Lettings Relief will only be available where the owner of the property is in shared accommodation with a tenant.
It is often a difficult decision as to when it is the right time to dispose of an investment property, particularly as there may be other complex tax issues that need to be considered.
The specialist property team at Alexander & Co can provide expert advice on all aspects of property accountancy and tax. It has knowledge and expertise in a wide range of investments and have worked with companies, entrepreneurs, individuals, trusts and organisations in the commercial and residential sectors for many years. You can contact us directly on 0161 832 4841, email firstname.lastname@example.org or visit our website at www.alexander.co.uk
"It is often a difficult decision as to when it is the right time to dispose of an investment property, particularly as there may be other complex tax issues that need to be considered"
John McCaffery, Partner Alexander and Co
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