Capital Gains Tax:

A seemingly innocuous point made by the Chancellor in his Budget speech last week could be a lot more important to landlords, or property sellers, than might seem at a first glance, of all the budget summaries.

It has previously been the case that landlords can claim private residence relief (PRR) if they let out a home they have lived in, when they sell. This might be for example when they can’t sell when moving out to a new home, when they move away with work, or they simply want some income from the vacant property.

It seems that from April 2020 PRR will apply only where the owner is sharing occupancy of the home with a tenant. It’s a situation that will apply to very few people, so effectively the PRR second home benefit is being removed altogether.

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It currently provides for up to £40,000 of relief (£80,000 for a couple) to people who let out a property that is, or has been in the past, their main home.

As it stands at the moment landlords do not pay any Capital Gains Tax (CGT) for the time they lived in the property, plus an additional exemption period of 18 months (this was three years until reduced in a previous Budget) that they owned it. But according to Mr Hammond, this final ownership period exemption will now be reduced even further, to 9 months.

So, it would seem that effectively this benefit is being removed entirely and could lead to a situation where owners will be reluctant to leave before selling their own home, possibly slowing even further an already stagnant housing market, or encouraging people to leave homes vacant for extended periods.

It is also likely to lead to a situation where more landlords will decide to sell properties now. When they have lived in the property themselves, and where there is likely to be a large capital gain, there is likely to be a strong motivation to sell, before the imposition of the new rules.

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