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The Autumn Budget 2018, which was delivered by Chancellor Philip Hammond last week, contained some major announcements that will affect the private rental sector and property investors. But what does this really mean for the UK’s property investors going forward into 2019 and beyond?
Online rental agent, LetBritian has detailed below the new changes introduced by the Autumn Budget 2018 and how they will affect property investors in this landlord blog.
One of the most important announcements in the 2018 Autumn Budget that will affect property investors is the Private Residence Relief changes to ancillary reliefs. These new changes mean that homeowners and investors could be hit with Capital Gains Tax (CGT) if they have previously let their property out before it was put on the market.
From 2020, the government will bring in changes to Lettings Relief and Final Period Exemption, two ancillary tax reliefs that are currently in place for rented property. These will have implications for the capital gains that are made in the final ownership period, irrespective of whether the property was occupied by a tenant or the owner.
The amount of CGT that you would need to pay on the sale of a property will vary depending on whether it was let out to tenants and how long you have lived at the property. The chargeable gain is the capital gain minus any private residence relief (PRR) if you qualify for it. PRR is a CGT relief that prevents people’s main home from being included in the CGT calculation.
At the moment you aren’t required to pay CGT for any years that you were living in a property as your main residence and you will also receive an extra CGT exemption for the last 18 months that you owned the property, whether you were living in it or not.
Currently, Lettings Relief is applicable up to the threshold of £40,000 of tax relief to those who have let out a property that used to be or is currently their main residence. So what this means is that property investors have been able to claim tax relief on a property when they haven’t been occupying it for a long period of time.
The new changes in April 2020 will mean that the amount of tax relief that landlords can claim will only be available to landlords living in shared occupancy with their tenants. However, this new change won’t affect owner-occupier private landlords or property investors that have never lived at their rented property.
Under the current guidance, private landlords only need to pay Capital Gains Tax (CGT) on capital made during the final 18 months of their ownership, whether or not they were an owner-occupier during that time when they sell their property.
Having a longer exemption period means that investors can accrue more CGT relief on an unsold property and a new property simultaneously, which was designed to help protect homeowners who move to a new main residence and find they are unable to sell their previous home immediately.
From April 2020, the CGT exemption will be reduced to 9 months, which might sound harsh at first, is actually twice the amount of an average property transaction. There are special considerations for those who are moving into a residential care home or those who have a disability and are still eligible for 36 months of final period tax exemption.
However, under the newly introduced rules, landlords who have previously rented out a property after they have been living in it as their main residence could face a much higher CGT bill when they come to sell their property. This is because depending on circumstance, the lettings relief that would previously be used to reduce a tax bill will effectively end. This will result in landlords paying a higher amount of chargeable gain.
The Chancellor announced in the Autumn Budget 2018 that from 2019-2020, there will be an increase in the annual exemption of Capital Gains Tax and the people who will be affected will be individuals, trustees of settlements and the personal representatives of deceased who have capital gains tax to pay. The amount for individuals and personal representatives will increase from £11,700 to £12,000 and the amount for trustees of settlements will increase from £5,850 to £6,000.
The online letting agents at LetBritain offer landlords services when managing a property, from the administration for statutory periodic tenancy, tenant reference checks, tenant finding and working out what is a good rental yield for your property investment. Find out how we can help you today!