There’s been some significant changes of late that are affecting landlords, some of which we wrote about here in case you missed them:
The latest change to Capital Gains Tax (CGT) will have further implications should you sell any of your investment properties after April 2020 – when the changes take effect.
Capital Gains Tax is a tax charged against the gain you make when you sell an asset, such as shares, business assets or property.
At the time of writing the CGT paid by higher rate taxpayers is 20% and 10% for basic rate taxpayers. Importantly for us though, this isn’t the case with property. CGT on property is 28% for higher rate taxpayers and 18% for basic rate taxpayers.
The CGT allowance for this tax year is £12,000, meaning you will only pay CGT on gains over this amount. If you own assets with a partner this amount could potentially double to £24,000.
You can find out more about CGT from the Gov.uk website here.
Private Residence Relief (PRR) is a tax relief that means you don’t pay CGT on your main home when you sell it. Under the current rules this also covers landlords that have lived in a property at any point during their ownership for any length of time and the final 18 months. Meaning that if you had bought a property and lived in it for a month, then let it out for 18 months before it was sold, you would pay no Capital Gains Tax.
Under the new rules from 6th April 2020, this 18 months is reducing to 9 months. This means another 9 months’ worth of gains may be taxable, if the property sold is not your main home.
Here’s some guidance on how to work out your gain and the tax you need to pay. If your tax affairs are fairly complex or it’s not clear-cut how to work out your property gains, we recommend you consult a professional tax advisor.
In addition to the PRR changes, important changes are also being introduced for Letting Relief. From 6th April 2020 this relief will only be available for those who shared occupancy with their tenant(s).
Letting Relief currently allows you to claim the lowest of the following if you have rented out your property:
Under the new rules you won’t be able to obtain Letting Relief if you’ve let your property out the traditional way and not lived there yourself at the same time.
Depending on your circumstances, should you sell any of your properties, you could be liable for extra tax under the new rules from 6th April 2020. However, if your strategy is to continue to build your portfolio and not sell any of your assets, you won’t be affected.
If you have never lived in any of your investment properties then again, these changes won’t impact you. These changes are more applicable to ‘accidental landlords’ and those who let out one or two properties that they may have lived in previously.
Under the new rules as is the case now, you will still be able to offset losses made on a property against gains made on others.
For more on PRR click here.
For more on Letting Relief click here.
Like any business, tax and regulatory changes can happen. The key is to find out about them ahead of time, consider how they will affect you, and then decide if your strategy needs adjusting as a result.
If you’re remaining ‘all in’ on building a portfolio and expanding your business, we can help!
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– Janice Minihan, director and co-founder of Property Deal Store