Capital Gains Tax (CGT) on the sale of second properties is applied to gains over £12,000, the annual tax-free limit. CGT is applied at 18% if you are a basic rate taxpayer or 28% for higher or additional rate taxpayers. These taxes should remain the same, however there are changes coming in April 2020 which may change your plans for your second home(s).
Exemption period reduction from 18 to 9 months
Currently if you have lived at the property at some point but not for all of the ownership (an ‘accidental’ landlord), then the past 18 months are currently considered to be automatically exempt. This is called Principal Private Residence (PPR) relief. However, from next April, this PPR final exemption period will be reduced to 9 months instead. There will be no change for people who are disabled or selling to move to a care home. In these cases, the last 36 months will remain exempt.
Lettings relief removal
Currently there is a letting relief exemption of up to £40,000 (£80,000 for a couple) to those who let a property that had previously been their main home. However, it’s proposed that from next April, this relief will only apply to owners who share the home with the tenant(s) under the same roof.
If you are an ‘accidental’ landlord, this is important to note because this could mean an increased tax bill if you decide to sell after April 2020. Avoid making a knee jerk decision and contact us to discuss your options further. Of course, these changes will not affect landlords who have never lived in the property they rent out – standard CGT rules apply.