Buy To Let Property Owners
Important changes in April 2020 to tax rules for buy to let property owners "
New Capital Gains Tax rules are set to take effect in April 2020, and most sales of additional properties in the UK will be affected.
The changes to Capital Gains Tax, which is paid on any profits made through the sale of a property that isn’t your main residence, will affect the amount of tax relief you can claim if you previously lived in the property, how letting relief will work, and the time you have to pay your Capital Gains Tax bill.
PRR Relief Changes
Private residence relief (PRR) means that homeowners don’t have to pay Capital Gains Tax on profits made when selling their primary residence. It also applies to some extent to landlords who used to live in the property as their main residence, but are now selling it.
Before April 2020, the exemption from paying tax covered the final 18 months that you owned the property, regardless of whether or not it is rented out.
From April 2020, this will halve to just nine months, meaning that once you have not lived in a property that was previously your main residence for longer than nine months you will probably need to pay some Capital Gains Tax on profits you make when you sell it.
Letting Relief Changes
For those who qualify for PRR, it might also be possible to claim letting relief. This relief can reduce the capital gains tax owed on a property by up to £40,000 of tax-free gains, or £80,000 for a couple.
Letting relief can currently be claimed if you used to live in the property you are selling, and have also let out part or all of it for residential accommodation. You can claim the lowest of the following: the same as the amount of PRR you will receive; £40,000; the chargeable gain you make from the period you let out the property. When the new rules come in from April 2020, you will only be able to claim this relief if you live there when it is being sold – if you share occupancy with your tenant.
Tighter Payment Deadline
Because Capital Gains Tax on property is currently paid through your self-assessment tax return, it normally doesn’t need to be paid until the following tax year – so a property sale that incurs Capital Gains Tax in the 2018/2019 tax year doesn’t need to be declared and paid until 31 January 2020.
But, from April 2020, sellers will need to pay the full amount owed within 30 days of the completion of the sale. While the cost will be the same (provided rates don’t change), the new time frame will need to be factored in, as failure to pay within the 30-day limit will lead to penalties.
Currently, Capital Gains Tax rates on property for 2019-2020 are 18% for basic rate taxpayers (£12,001-£50,000) and 28% for higher rate taxpayers (£50,001+).
Deductions and exceptions
Under current rules, and with no expectation of this changing in the foreseeable future, there are certain costs that can be deducted from your Capital Gains Tax. This includes:
- Stamp duty paid on purchase of property
- Estate agent fees
- Solicitor fees
- Improvement costs - such as extensions
- Qualifying buying and selling costs - such as surveyor fees
Please call Khan Thornton for advice on this subject