Lettings Relief Rule Changes Could Leave Landlords Worse Off

Landlords and property owners could be hit in the pocket by a shake-up to lettings relief, which reduce the tax-exempt amount when selling a home. 

Aberdeen-based accountants, Hall Morrice are alerting property owners to these changes, and suggesting that they act now to avoid falling afoul of the new rules which will be rolled out in April.

The new rules concern lettings relief and final period exemption and could cause the amount of Capital Gains Tax payable to vary wildly if individuals decide to sell rented property that was their own home at some point during the ownership. 

Richard Stephenson, senior manager at Hall Morrice, said: 

“Property owners have faced numerous tax changes in recent times, and more are on the way.

“For landlords, it’s important to factor this into future planning. By being aware of the issues and taking appropriate action, they won’t end up with penalties for failing to file the appropriate returns.”

Principal Private Residence (PPR) Relief has in the past, provided a useful exemption from Capital Gains Tax (CGT) with landlords being able to claim PPR relief for all the time they lived in their property before letting it to tenants, plus an extra 18 months after moving out.

From 6 April, landlords will lose nine months’ worth of CGT relief when they come to sell. This is because PPR will be reduced to the time they lived in their property, plus nine months.

CGT relief of up to £40,000 (£80,000 for a couple) has been available for those who let out a property that is, or was in the past, their home. This relief has applied whether a single room is rented, or the whole property.

But the new rules mean that the relief will only apply to live-in landlords who are in shared occupancy with their tenant, such as those who let out rooms to lodgers.

In addition, in property sales where a CGT charge arises, there will be a new 30-day reporting and payment window. Sellers will be required to submit a standalone tax return and subsequent payment, to HMRC within 30 days of completion.

Disposals made on a no gain, no loss basis are excluded from the obligations and they are most likely to affect those selling a second home or rental property on which relief is not available.

Taxpayers will be permitted to factor in realised capital losses and available reliefs into their calculations and any adjustments to the final tax position will be made as part of the self-assessment tax return process following the year end.

Richard adds: “For quite some considerable time, PPR relief has included some valuable ancillary reliefs which have enabled individuals beyond owner occupiers to benefit from CGT relief when they come to sell their property, so this will have quite an impact on some property owners.

“In a nutshell, if you sell a property, and especially if you own more than one property, you may have to pay more Capital Gains Tax.

“It’s important for landlords to have a good grasp of the subject and understand how the changes coming in on April will affect them, by seeking appropriate advice, particularly any landlords who might be considering a sale.”