Recent budgets have felt as though they’ve been designed to attack landlords and the recent Autumn 2018 budget was no different.
A reduction of the final exemption period for principal private residential relief (PPR) from 18 months to 9 months was introduced as well as the end of the generous lettings relief.
PPR protects the sale of one’s main home from capital gains tax. Where a property was an individual’s main home and let out during the ownership period, the last 18 months are sheltered from any capital gains tax bill. This 18 month concession will decrease to only 9 months from 6th April 2020. This is known as the final period exemption.
The reliefs as they currently exist can be very useful in mitigating or even eliminating capital gains on sale of property. This is all set to change in the near future so careful tax planning is advised where one wants to sell their investment in the near future.
Lettings relief is available where a gain arises on the disposal of a property which:
- at some time has been the individual’s only or main residence;
- during the period of ownership, all or part of the property has been let as residential accommodation;
- a chargeable gain arises as a result of the letting.
Currently, the amount of the relief is the lowest of the following three amounts:
- the amount of PRR;
- £40,000; and
- the amount of the chargeable gain arising as a result of the letting
Steps to consider
If the legislation mirrors that introduced when the final period exemption was reduced from 36 to 18 months, contracts will need to be exchanged before 6 April 2020 with completion by 5 April 2021 in order to benefit from the current 18-month final period exemption.
It may thus be prudent to consider bringing forward any intended sale before the changes are effective.