The end of lettings relief?

Officially announced in the 2018 budget and still yet to be passed through Parliament, although this does seem to be a simple rubber stamping process, lettings relief is due to come to an end on 5 April 2020.

Also due to be revised on the same date is the final “any use period” of Private Residence Relief (PRR), being reduced from 18 months to 9 months. This is apparently to account for a much more buoyant housing market.

How it works

First introduced in 1980, lettings relief is a generous allowance for anyone who has rented out a property that was once their main home.

On eventual disposal of the property, it can give up to a maximum £40,000 additional relief per owner.

Example

Say you have owned a house for a total of 15 years, the first 5 of which it was your main home and the value of the house has increased by £100k. Let's see how the capital gains tax liability will change overnight as we go into the new tax year.

   

Date of property sale

   

5 April 2020

6 April 2020

   

£

£

Increase in value

 

100,000

100,000

PRR (5/15)

 

(33,333)

(33,333)

Final period any use PRR

 

(10,000)

(5,000)

   

57,000

62,000

Lettings relief

 

(40,000)

0

CGT allowance

 

(12,000)

(12,000)

Chargeable to CGT

 

5,000

50,000

CGT payable (rates @ 18/28%)

 

£900/£1,400

£9,000/£14,000

The removal of this allowance is expected to bring in a further £735,000,000 per year in capital gains tax, so it's no surprise that HMRC are eager to make this change. 

What to do now?

If nothing else you should at least check how your capital gains tax position will change going into the new tax year.

With just 2 months until these changes are introduced there is now very little time to get your property advertised and sold before 5th April. If you are currently considering your Capital gains Tax position, and the impact of these changes, then get in touch with us as soon as possible.

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