Whether that be
- the increased rate of capital gains tax on residential property, or
- additional SDLT on two or more properties or,
- the interest restrictions tightening year on year
6 April 2020 is a date to be aware of when the latest raft of changes come in and the landlords’ property tax time bomb well and truly goes off!
The key changes coming in are:
- Restriction of Principle Private Residence Relief (PPRR)
- Letting relief changes
- New Capital Gains Tax payment date
- New Capital Gains Tax only returns
- Full impact of interest restrictions
If you’re in the position where you:
- Own a property; and
- Have previously; but no longer live in it, and
- Currently let it.
Then the combination of all of the above changes will make a significant tax difference to you if you sell after 5 April 2020.
If this applies to you, then read on as to how it affects you and how we at Cottons can help you mitigate against them.
Restriction of Principle Private Residence Relief (PPRR)
Provided at some time in a person’s ownership of a property it is their main residence then the final period of ownership will be tax-free, irrelevant of whether it is actually occupied as such.
On 6th April 2020, the final period exemption will be reduced from 18 months to 9 months.
The current position to qualify for lettings relief is for:
- an individual to have occupied the property as their main residence at some point in their ownership; and
- have also let it whether, they still occupied the residence or not
The relief available is the lower of:
- Gain attributable to time occupied as main residence
(including the last 18 months)
- Gain chargeable
This relief is applicable per person so if you have a couple who jointly own a property then there is scope for up to £80,000 of letting relief (2 x £40,000).
The changes coming in on 6 April 2020 state that letting relief is now only available where at any time in the individual’s period of ownership:
- part of the dwelling-house is the individual’s only or main residence; and
- another part of the dwelling-house is being let out by the individual as residential accommodation otherwise than in the course of a trade or business
Effectively, this means that lettings relief will not be available for those periods where an owner has moved out of the property and therefore no longer shares occupation with a tenant or tenants.
Lettings Relief has a tax saving value of up to £11,200 per person.
New Tax Return and Tax Payment Date
In addition to the changes to PPRR, the government is also introducing a reporting requirement on the sale of all UK residential properties. This would include residential investment property and also situations in which the sale of a person’s home is not fully covered by PPRR.
In such situations a new “Capital Gains Tax only” return must be completed within 30 days of completion of the property sale.
In addition, if a person is required to make such a return and, as at the filing date for the return, an amount of tax is notionally chargeable, the person is liable to pay that amount on account on the filing date for the return at the same time.
Currently the need to report a capital gain is undertaken on a regular Self-Assessment tax return and any payment of tax on the gain is due on 31 January following the tax year in which the disposal is made. Hence, the new requirements are a significant increase in administration and reduction in cashflow.
Effect of the Changes
Grahame, a higher rate taxpayer, purchased a house for £200,000 in October 2007 and sold it for £301,740. He originally lived in it but due to work commitments moved out in October 2013 and then let it for the last 77 months of ownership. His capital gains tax annual exemption was fully used up with gains he had made on his share portfolio.
There is a significant difference as to whether Grahame sells before 5 April 2020 or afterwards.
In summary the difference between a sale pre 5 April 2020 v post 5 April 2020 is:
- an additional £12,819 tax
- due for payment 8 months earlier than previously
What can I do?
Don’t panic, all is not lost.
The most important next step is to stop and think as to what you want to do next and not just bury your head in the sand hoping it will go away!
There are three main options to choose from:
- Do nothing and accept the loss of PPR and Lettings Relief
- Sell the property prior to 5 April 2020 and secure the PPR and Lettings Relief
- Trigger the gain through a ‘self-disposal’ which gives the effect of securing the PPR and Lettings Relief while still maintaining an element of control of the property.
There are many ways of structuring a self-disposal based on your individual circumstances. As such if this is an area you would like to explore further then please contact Matt Harrison on email@example.com to arrange a one to one consultation.