3 Major Changes to Principal Private Residence & Letting Relief
A few years ago, the UK Government changed the rules regarding the claiming of mortgage interest and wear and tear allowance which significantly affected all landlords of buy to let properties in the United Kingdom.
If you currently let a property in which you used to live, it is well worth us having a discussion to see how these changes will affect you after April 2020 and more importantly come up with a plan to mitigate the capital gains tax burden that will arise.
Here is a brief rundown of the three major changes being introduced:
1. Time Allowance
Currently, if you live in a property, which is your main residence, any gain arising whilst living there, is not taxable i.e. Principal Private Residence (PPR) relief can be claimed. However, if it was rented out any point, that time period may not qualify for PPR and capital gains tax (CGT) may be payable.
The standard rule was that whatever you did with the property, the last 18 months qualified for PPR relief even if you did not live in it over those 18 months.
From April 2020, this time allowance will be reduced to 9 months only.
2. Lettings Relief
Currently, for any properties that are being let the landlord qualifies for Lettings Relief against any gain arising. You get the lower of the gain:
- The same amount of PPR relief
- The same amount as the chargeable gain you made from letting your home
Effectively, if you lived in a property before it was let, and there is PPR relief available, there will also be Lettings Relief.
From April 2020, lettings relief will only be allowed if there is a lodger living with the landlord.
3. Ownership History
The last change could benefit tax payers on disposal. Currently if you transfer your property to your spouse, for example, the transferee does not inherit the ownership history.
From April 2020, the ownership history will be transferred with the property.
PPR and Letting relief have historically been very favourable for owners of properties that have been lived in – even if only briefly – and then let out. Where this is the case, it is often possible to sell or incorporate into a limited company at little or no CGT… This will no longer be the case from April 2020 onwards as these reliefs are restricted significantly!
For the majority of landlords that have a smaller portfolio, if you are considering selling or incorporating you should do so quickly!