If you have residential investment properties which you let out you are probably already aware of the tax changes targeted at you in recent years, like the restriction on relief for finance costs.

For those of you who own a property has at some point during your ownership been your home there are more changes to come!

With effect from April 2020, the Private Residence Relief for the final period of ownership will reduce from 18 months to 9 months and Lettings relief will only apply when the owner of the property occupies the property at the same time as the tenant.

To illustrate how these reliefs work. Let’s say you sell a house in 2018/19 which realises a gain of £300,000, you have owned the property for 10 years, lived in it for the first 5 years after which it has been rented out.

Private Residence Relief will apply to 6 ½ years (65%) of the gain, leaving a potential taxable gain of £105,000.

You will then be able to claim Letting Relief which is the lower of:

1. The amount of Private Residence Relief claimed (£195,000), or
2. The amount of the gain which relates to the period it was let (£105,000), or
3. The amount of the gain which relates to the period it was let (£105,000), or

So, after deducting the £40,000 Letting Relief available the remaining gain chargeable to capital gains tax will be £65,000.

This will be taxed at 18% and/or 28% depending on your other income levels in the tax year.

After next April, the amount of private residence relief available will reduce to 5 years and 9 months (57.5%) leaving a potential chargeable gain of £127,500.

Lettings relief will then only be available if you shared occupancy of the property with your tenant.

All the increase in the chargeable gain (£62,500) will be taxable at 28% meaning these changes could cost you £17,500.

Therefore, if you are in this situation and thinking of selling in the near future it maybe better to do it before April 2020.

For the avoidance of doubt the disposal date, which will determine which tax year the gain falls in, is the date you exchange contracts.

If you would like further advice on this, please get in touch with us.