It is very common in the UK now for couples to move in together but keep the individual properties they previously lived in to rent out. Changes around Capital Gains Tax in the 2018 budget, however, might be food for thought. If you are thinking of selling a 'Buy To Let' property that you once called home, you would be well advised to act quickly.
What Has Changed With CGT For Homeowners?
In essence, the 2018 Budget took aim at the tax-free gains you could make when selling your property. Usually, any gain made on selling a UK residential property has Capital Gains Tax applied at 28% (or 18% for taxpayers on the basic rate). The gain related to the period where the homeowner occupied the property as their main residence, however, is exempt. This is commonly known as PPR or Principle Private Residence relief. PPR exemption can be extended in cases where the homeowner may not actually have been occupying the property. It is two of these PPR extensions which the 2018 Budget targeted.
Lettings Relief Affected
If the property in question has been rented out at any point, each homeowner is eligible to claim for lettings relief. Each can claim up to £40,000 of cover under this scheme but only if the property was once their main residence at some point in the past.
With these latest changes, the Government will restrict this kind of relief to only cover periods when the homeowner is also occupying the same property in a 'shared-occupancy' arrangement. For many, this seems to miss the whole point of lettings relief in relation to Capital Gains Tax.
Last Few Months
At times, a homeowner may move out of their property before a sale is made. In these cases, the gain building up for the final period of non-occupation and a sale not been agreed would be subject to CGT if contracts for sale were not exchanged when the homeowner initially left.
At the moment, PPR relief is extended by 18 months to take into account the last period of ownership. However, it is important to note that the older 36-month allowance is currently still in place for those who move into care homes or are disabled. Now though, the UK Government is proposing to slash PPR exemption for this last period of ownership to only 9 months!
Act Now To Avoid Getting Hit By Higher CGT
The above changes will come into effect as of 6th April 2020. That means there is less than ten months to go now! If you are thinking of selling a 'Buy To Let' property that you once lived in, you need to move fast. It is worth seriously thinking about selling before 5th April 2020 to avoid getting hit by much higher tax bills on any future sale.