New rules will have a big impact for property owners

September 3, 2019

Anyone generating rental income from a property that was once their main residence, needs to be aware of how major amendments to HMRC’s Capital Gains Tax (CGT) regime might affect them from April 2020.

Accountancy firm Mapus-Smith & Lemmon advises those thinking of selling such a property to do so before the next tax year in order to make the most of the current Principal Private Residence (PPR) relief and lettings relief schemes.

As an example, Helen Peak, chartered certified accountant at the Wisbech office, says: “We have completed a tax return for a client who sold their property during the 2018/19 tax year.  With PPR and lettings relief there has been no CGT to pay but if they had sold it after 6 April 2020, the tax bill would have been about £12,000.”

Currently PPR allows for CGT relief for the last 18 months of ownership. This is being reduced to nine months. However, the existing relief for those with a disability or moving into social care will remain at the original level of 36 months.

Lettings relief gives an individual a CGT-free allowance up to a maximum of £40,000 or £80,000 for a couple – on the basis that the property was their main residence before letting it out.  However, from 6 April 2020 this will be abolished unless the owners are in shared occupation with their tenants. This reflects on the original incentive of the scheme which was initiated to encourage homeowners to rent rooms out in their main residence.

Once the liability is calculated, CGT is charged at 18 per cent or 28 per cent depending on whether the property seller is a basic or higher rate tax paper.

HMRC has announced also the possibility that from 6 April 2020, where the gain on a second home or rental property has not been covered by PPR, then CGT will be payable within 30 days from completing the sale of the property.

For further information, please contact Helen Peak on 01945 427050.