In most cases, if you have lived in your home during the entire period of your ownership of a property, then when you sell that property you should pay no capital gains tax (CGT) on any profit you make on the sale. You can claim the Private Residence Relief (PRR) to exempt any profits made.
The situation is very different if you have periods of time – during your ownership of a property – when you let out all or part of the property.
The current rules up to 5 April 2020
If you let your entire property for a period or periods of time this gap or gaps in your residence will potentially push a proportion of the profit you make when you sell the property into charge for CGT purposes.
However, under the current rules, up to £40,000 (£80,000 for a couple) of lettings relief can be claimed to reduce or eliminate this charge – whether or not you share occupancy of your home with your tenant.
Additionally, the last 18 months of your ownership are disregarded and treated as exempt from any CGT charge.
These current, additional reliefs will usually exempt any potential CGT charge occasioned by short periods of letting.
Two important changes are about to impact these additional from reliefs from April 2020.
Changes from 6 April 2020
From this date, you will only qualify for letting relief if during the period your home is let you are in shared accommodation with your tenant. In other words, letting relief is becoming a lodger’s relief.
Homeowners who do not reside in their property during periods when their property is let will not be able to claim lettings relief for the period that occurs after 5 April 2020.
Additionally, the 18 months exempt period at the end of your ownership is being reduced to 9 months from the same date, 6 April 2020.
Homeowners should take both of these changes into account when letting their home from April this year.
How much tax will you need to pay if affected?
If you presently let your home, or have let the property in past years, and you want clarity about any risk of paying tax when you sell the property, please call and we will help you assess this risk.
