Many of you may know that if you make a profit selling a property you’ve only ever used as your home there is usually no tax to pay on that profit. But what happens if you sell a property that was once your home (or ‘main residence’) but has also been let out?
At the moment there are 2 very generous tax reliefs available; they are ‘Principal Private Residence Relief’ (PPRR) and ‘Lettings Relief’ (LR).
PPRR exempts any gain attributable to periods of actual occupation as your main residence, and the final 18 months of ownership regardless of whether or not you occupied the property during that period.
LR is the lower of a) the amount of PPRR already calculated, b) £40,000, and c) the gain attributable to the period the property was let out.
Bob is a higher rate taxpayer and has used up his annual CGT exemption elsewhere. He then makes a gain of £115,000 when he sells a property he has owned for 11.5 years. He lived in the house for 6 years as his own and only residence, then let it out for 4 years, and finally it was empty until sale, so both PPPR and LR are available.
Assuming the gain accrues evenly over the 11.5 year period (£10,000 p.a) Bob will have no tax to pay because:
a) £75,000 of the gain is exempt under the PPPR rule as a result of the property being Bob’s home for 6 years, and the final 18 month rule.
b) £40,000 is exempt under the Letting Relief rules (being the lower of a) £75,000, b) £40,000, and C) £40,000)
Unfortunately, the government proposes to change these rules as from April 2020, so that:
a) there is no lettings relief unless the owner is in shared occupancy with the tenant
b) only the final 9 months are exempt under PPRR if the house is empty or let out
So, and assuming all other things being equal, if Bob delays the sale until April 2020 then makes the same capital gain he will have a tax bill of £15,400 instead of nil!
The taxation of property is complex and the rules across ALL property taxes are undergoing great change. Good advice is usually far less costly than failing to plan, so if you have ‘business property’ call me on 01539 432540 for a free initial consultation or email email@example.com outlining what you’d like to discuss.