Analysis of the CGT situation for LPR changes for landlords.

In the October Budget, the chancellor announced changes which will impact on landlords’ capital gains tax position (where they are eligible for letting relief) from April 2020. These were:

  • the final period exemption will be reduced from 18 months to nine months. However the final period exemption will remain 36 months for those who move into care and for disabled persons
  • lettings relief will be available only to those who are in shared occupancy with a tenant.

HMRC’s has issued its current guidance and the government will consult on these changes before implementation.

The new rules could affect those who have had to relocate for work or have separated from their partner or moved in with a new partner, and who either didn’t want to sell up immediately or were unable to find a buyer. Additionally it could affect landlords and property developers who move into their rental homes for a short-term period before selling so they qualify for lettings relief.

What are let property relief rules?

Let property relief can reduce capital gains tax. The following conditions need to be met for the relief to be available:

  • the property must have been used (wholly or partly) as the private residence of the owner(s)
  • the dwelling house in question (or any part of it) must have been let out by the owner(s) as residential property.

The let property relief reduces the chargeable gain by the lower of the following three figures:

  1. the main residence relief
  2. the gain attributable to residential letting
  3. the statutory limit of £40,000.

The relief applies to gains arising both from a residential letting of the entire residence whilst the owner is not occupying the property and to a partial residential letting whilst the owner is in residence.

Where a property, although part of the same building, forms a dwelling-house separate from that which is, or has been, the owner’s dwelling-house, relief will not be available. For example, if a fully self-contained flat with its own access from the road forms part of the property and the owner lives in another part of the property then relief will not be available just because that self-contained flat is let out.

As per the explanation provided in HMRC manual CG64716, the following are able to claim let property relief:

  1. Husband and wife

Where husband and wife are joint owners relief of up to £80,000 is potentially available to the couple as each person may be entitled to the relief of up to £40,000.

  1. Trustees

Let property relief extends to gains accruing to trustees and qualifying for the main residence exemption (TCGA 1992 s 225).

  1. Dependent relatives

The residential lettings exemption may be available where the property qualifies for the main private residence exemption due only to its having been occupied by a dependent relative on or before 5 April 1988.

These examples show the impact the proposed changes will have on CGT liability as compared to previous rules.

Article from ACCA In Practice