Residential Properties and Tax Changes

In the past couple of years there have been changes in the tax relief that owners of residential properties can claim.  Further changes to capital gains tax rules will also be introduced from 6 April 2020 for all residential property owners.

Since 2017/18 tax relief for interest paid on a loan to purchase a residential let has been restricted.  The change has been phased in and with effect from 6 April 2020 no higher rate tax relief is available unless the loan is in respect of qualifying furnished holiday let or a commercial property.   Basic rate taxpayers are no worse off but the restriction of interest relief to 20% increases the tax bills of higher rate taxpayers and will take some basic rate taxpayers into the higher rates. 

With effect from 6 April 2020 capital gains tax changes come into force as follows:

From 6 April 2020 the disposal of a residential property must be reported to HMRC within 30 days of disposal and any capital gains tax paid (the main residence is exempt from this requirement).  Conveyancing solicitors may not be aware of this requirement and accountants would not normally be aware of the disposal until they prepare a client’s tax return which could be nearly 12 month later!  There will be penalties for returns submitted late.  If you are planning to sell a property, please let us know and we can ensure that the return is made on time.

Currently a property which has been an individual’s only or main residence at some point and which is let benefits from an additional capital gains tax relief on disposal called letting relief.  This can be generous and reduce capital gains by up to a maximum of £40,000.  This relief is withdrawn for disposals from 6 April 2020 unless the owner of the property has been in occupation at the same time as the tenant. 

Finally, currently where a main residence is sold, which has been vacant for the final period of ownership, the last 18 months of ownership is exempt from capital gains tax.  This 18 month period will be reduced to 9 months for disposals after 6 April; 2020.  Individual’s who have been letting a property which has previously been their main residence will now pay more capital gains tax on disposal because of these two changes.

Please contact Anne Wilson or Ben Davies for advice.

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