Changes to second home capital gains tax relief from April 2020

If you’re someone who owns a second home perhaps as a result of a new relationship or inheritance and could be considered to be an “accidental landlord” and you’re planning to sell soon, there are some changes to Capital Gains tax on the horizon that you’ll need to be aware of when you decide whether it’s the right time to sell. From the start of the new tax year this April, anyone who owns a second property will pay higher Capital Gains tax on any profit generated from a property that isn’t their main residence. 

Lettings Relief tax changes

Lettings Relief currently allows accidental landlords who once lived in a property to receive capital gains tax relief of up to £40,000 for individuals and £80,000 for couples. The Lettings Relief covers the time that the owner didn’t live in the property and the proportion of profit for that time, plus an 18 month exemption period. This relief is being removed from April 6^th 2020, unless you lived in the property at the same time as your tenants; for example, you rented out a room or two. The exemption period is also being reduced to 9 months. So if for example you have owned the property for 8 years and you have let your property out as a whole for 4 years, you will no longer receive any capital gains tax relief on the percentage of profit earned in 3 years 3 months of those 4 years.

Other forms of tax relief when selling a property

The other tax relief that can be claimed when selling a second property is PPR (Private Residence Relief) and your annual personal allowance and this remains unchanged for now – each individual circumstance will be different and you should speak with a tax advisor to see how much tax relief you might be able to claim under these allowances.  Depending on how different tax allowances are used, the difference on a £100,000 profit could rise from £0 to over £11,000.

So, if you are looking to sell a second home without being hit with a large capital gains tax bill, the deadline is April 5^th this year. Beyond that point, it’s sensible to consider whether you may make better use of your property asset by continuing to let it out in the mid-term.

The overhaul of Lettings Relief is another chip at the tax breaks available to landlords and follows on from being able to claim mortgage interest as a pre-tax expense, all of which has to be taken into account when calculating the financial return on a property investment. If you would like advice on maximising the value of your property assets through letting, or if you are considering selling before April, please contact us and speak to our professional valuation team. https://oakleyproperty.com/valuation-services