Letting out a property that was previously your own home? It may be beneficial to sell before new tax rules take effect from April 2020

Exchanging contracts to sell before 6 April 2020 could save significantly on your tax bill as Lettings Relief is largely scrapped and Private Residence Relief is radically reduced.

If you are letting out a property that was once your only or main residence and are considering disposing of this asset at some point in the future, it may be prudent to consider doing so before April 2020. This is because two generous tax reliefs, that you may not be aware of, are being significantly reduced.

Private Residence Relief (PPR), which allows an additional grace period of the last 18 months of ownership, is being halved to nine months, whilst Lettings Relief is being withdrawn completely (unless you share your home with a tenant). If your property has increased in value since purchase, this could have a huge impact on your capital gains tax bill if you sell the property after 5 April 2020.

Private Residence Relief (PRR)

Currently, when you rent out a property that was once your main residence, Private Residence Relief is available for the amount of time you lived in it, together with an 18 month grace period up to when you sold it, regardless of whether you lived in the property during this period or not, even if it was rented out during this period.

This means that if the value of your property has increased since you purchased it, you only pay capital gains on the remainder of the time, as a percentage of the increase in value, less any tax allowable purchase and disposal costs (such as stamp duty, conveyancing fees and legal fees).

Lettings Relief

More critically, Lettings Relief, which can be up to £40,000, per person, per property, is being withdrawn from April 2020. These two changes could mean that you could be liable for a considerable tax bill if you do not exchange contracts on a property before the end of the tax year (for tax purposes, it is the date of exchange, not completion that is the key date to determine when a property is sold). Under the current arrangements, even a considerable increase in a property’s value could result in a nil capital gains tax bill once these two allowances have been factored in.

Exceptions to the changes are the 36 month period that PRR is available for disabled persons, or those in a care home, which will remain. Lettings Relief will only be available where the owner of the property is in shared accommodation with a tenant.

It is often a difficult decision as to when it is the right time to dispose of an investment property, particularly as there may be other complex tax issues that need to be considered.

How Alexander & Co can help

At Alexander & Co, our specialist property team can provide expert advice on all aspects of property accountancy and tax. We have knowledge and expertise in a wide range of investments and have worked with companies, entrepreneurs, individuals, trusts and organisations in the commercial and residential sectors for many years. 

Our property experts have specialist skills in advising businesses and individuals and can deliver commercial and practical solutions to maximise your returns. Our skills range from help with selling and developing your portfolio to more complex arrangements. For more information, you can email info@alexander.co.uk or call us on 0161 832 4841. Alternatively, fill out the form below and we’ll be in touch shortly.