Details of the latest tax hike to hit landlords and other property investors have been revealed by the Treasury.
This time, capital gains tax is undergoing a major revamp aimed at raising almost an extra £100 million a year over the next five years.
The two CGT tax reducers for property investors are changing from April 6, 2020:
- Principle residence relief still applies, but the final exemption is cut by half. That means instead of an 18 month tax-free period of grace when disposing of a property, the exemption is restricted to nine months.
Some special rules giving a longer exemption apply, but only for those in care or with a disability.
- Lettings relief will only apply if a landlord lives in a property as their main home and shares with a tenant.
The new rules were revealed in a consultation paper published by the Treasury.
Currently, lettings relief is available to home owners who have rented out their former main home and is worth up to £40,000 for each owner.
Many couples pay no CGT on selling investment property once principle residence relief, lettings relief and the 18-month exemption are applied as their reliefs can double to allow a tax-free gain of £80,000 or more.
The consultation explains lettings relief was designed as a tax break for home owners taking in lodgers.
“In practice lettings relief extends much further than the original policy intended and also benefits those who let out a whole dwelling that has at some stage been their main residence,” says the report.
“The reform to lettings relief announced at Budget 2018 will limit the availability of lettings relief and restrict it to those who share occupation of their house with a tenant for all disposals made on or after April 6, 2020.”