Innovative accountancy firm, Thorne Widgery, is calling on landlords, property investors and home sellers to prepare for new potential changes to taxation next year, which could result in additional tax being taken from the disposal of their home.
From April 2020, the date on which Capital Gains Tax (CGT) must be paid on gains arising on the sale of residential property is changing.
After this date, taxpayers will have only 30 days to file a CGT return and make an advance payment towards their tax bill where CGT is due.
This differs drastically from the current rules, which allows people to pay CGT on the disposal of a property up to 22 months after the sale as part of the self-assessment cycle.
Most people will not pay CGT on the sale of their main home thanks to tax relief, but some larger properties and second homes do.
At the same time, Lettings Relief will be restricted to property owners who have shared occupancy of a property with their tenant at some point during their ownership.
Currently, taxpayers who let a property that either is currently or used to be their main residence can claim Lettings Relief of up to £40,000 when they sell that home, with up to double that being available to a married or civil partnered couple.
However, under the new system, in order to benefit from this tax relief, they will have to pass a shared occupancy test, which will prove that they were living in the property at the same time that it was let, this can be difficult in a number of different situations.
What is most concerning about this change is that it has the potential to affect the growing number of ‘accidental landlords’, i.e. those people who have lived in a house for years, but who have decided to rent out their home before they sell it.
You may want to consider selling a property before these changes come in, although it is not certain at this stage whether these proposals will become law.
Key changes also come into effect next April in respect of Principal Private Residence Relief (PPR), which will shorten the Final Period Exemption (FPE).
This means that landlords will be exempt from paying CGT on the gains made in the final nine months of ownership, instead of the final 18 months, as is currently the case.
There are however no changes to the 36 months currently available to the disabled or those in a care home.
These changes to the taxation of property come after several other changes, including restrictions to relief on mortgage interest, which have made property investment less attractive to many people.
It seems likely that these steps will also restrict the number of landlords and investors out there, as it will make the process of owning an investment/residential property less tax efficient.
Despite the changes to property tax, in some circumstances, property investment could still offer advantages over other forms of investment but we are encouraging people to seek out professional advice before investing in the market.
If you are concerned about the changes to the taxation of property, please visit contact us