Monday’s budget wasn’t horrendous for landlords, but wasn’t particularly helpful either, particularly for landlords looking to sell.
The most major change effects the capital gains tax relief that is available to buy to let landlords when they sell a property that has previous been their primary residence.
Principle Residence Relief
Currently, a landlord can add 18 months to the time they occupied a the property to reduce the Capital Gains Tax. From April 2020, this will be reduced to 9 months. For example, if you own a property for 12 years, and lived in it for 6, under the current rules, 7.5 years of ownership are exempt from CGT. From April 2020, this would be reduced to 6.75 years (6 yrs, 9 months).
Example: You make a gain of £120,000 when you sell your home, which you owned for 12 years. You lived in the whole property for 6 years, then you let it out in full for 6 years. You get Private Residence Relief for the time you lived there (6 years). You also get relief for the last 18 months you owned the property, even though you weren’t living in it. This means you get Private Residence Relief for 7.5 of the years (62.5% of the time) you owned the property. You get Private Residence Relief on the same proportion (62.5%) of your gain. This means you won’t pay tax on £75,000 of the gain. The remaining 37.5% (£45,000) of the gain not covered by Private Residence Relief is your chargeable gain.
Under the new rules, in the same scenario, you will get Private Residence Relief for 6.75 years (6 yrs + 9 mths) or 56% of the time you owned the property. Your Private Residence Relief on 56% of the gain is equivalent to £67,200, meaning your chargeable gain will now be £52,800.
Lettings Relief is available to landlords who sell a property that has previously been their primary residence.
Lettings relief is currently up to £40,000 for each owner (so £80,000 for partners). It is calculated as the lowest of either:
the level of Private Residence Relief;
or the chargeable gain you made.
Example: As per the above scenario, because you made a chargeable gain of £45,000 while letting your property (and got £75,000 in Private Residence Relief) you can claim £40,000 in Letting Relief. This means you’ll pay Capital Gains Tax on £5,000.
From April 2020, this relief will only be available to a landlord who shares a home with a tenant.
Capital Gains Tax
The minimum threshold for CGT will increase from £11,700 to £12,000 from April 6th 2019.
The rate remains the same, at 18% for basic rate tax payers, and 28% for higher rate tax payers.
The personal allowance for income tax increases from £11,850 to £12,500 from April 6th 2019, and the higher rate threshold increases from £46,350 to £50,000.
Annual Investment Allowance
The Annual Investment Allowance for capital spending by businesses will rise from £200,000 a year to £1 million for two years from January 2019.