Property owners could be hit in the pocket by a shake-up in lettings relief which will reduce the amount they can shelter from tax when selling a home.
Aberdeen-based independent accountants Hall Morrice has called on landlords to act now to consider the impact that new legislation - which will be rolled out from April - could have.
The new rules on lettings relief and final period exemption will have a significant impact on the amount of Capital Gains Tax payable by individuals who decide to sell rented property which, at some point during their period of ownership, has been their home.
Richard Stephenson, senior manager at Hall Morrice, said: “Property owners have faced numerous tax changes in recent times, and more are on the way.
“For landlords, it’s important to factor this into future planning. By being aware of the issues and taking appropriate action, they won’t end up with penalties for failing to file the appropriate returns.”
Principal Private Residence (PPR) Relief has provided a useful exemption from Capital Gains Tax (CGT) with landlords being able to claim PPR relief for all the time they lived in their property before letting it to tenants, plus an extra 18 months after moving out.
From 6 April, this will be reduced to the time they lived in their property, plus nine months, meaning the landlord will lose nine months’ worth of CGT relief when they come to sell.
CGT relief of up to £40,000 (£80,000 for a couple) has been available for those who let out a property that is, or was in the past, their home. This relief has applied whether a single room is rented, or the whole property.
But the new rules mean that the relief will only apply to landlords who are in shared occupancy with their tenant, such as letting out rooms to lodgers when their children have grown up.
A new 30-day reporting and payment window comes into effect for sales of residential property where a CGT charge arises. A standalone return will be required to be submitted to HMRC within 30 days of completion, along with a payment on account of CGT based on an estimated calculation of the gain.
Disposals made on a no gain, no loss basis are excluded from the obligations and they are most likely to affect those selling a second home or rental property on which relief is not available.
Taxpayers will be permitted to factor in realised capital losses and available reliefs into their calculations and any adjustments to the final tax position will be made as part of the self-assessment tax return process following the year end.
Richard adds: “For quite some considerable time, PPR relief has included some valuable ancillary reliefs which have enabled individuals beyond owner occupiers to benefit from CGT relief when they come to sell their property, so this will have quite an impact on some property owners.
“In a nutshell, if you sell a property, and especially if you own more than one property, you may have to pay more Capital Gains Tax.
“It’s important for landlords to have a good grasp of the subject and understand how the changes coming in on April will affect them, by seeking appropriate advice, particularly any landlords who might be considering a sale.”
The Government says it is introducing the changes to better focus PPR relief to owner occupiers.
Founded in 1976, Hall Morrice is one of Scotland’s leading independent firms of chartered accountants and has offices in Aberdeen and Fraserburgh. Further information is available at www.hall-morrice.co.uk.
Richard Stephenson, Hall Morrice