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On 6 April 2020, the rules on private residence and letting relief are changing. This is important to know about if you are a landlord of any kind.

Private Residence Relief (PRR) is the relief that allows you to sell your main home without having to pay capital gains tax.

From 6 April 2020, this relief will be reduced from the full period the owner lived in the property as their principal residence plus the final 18 months of ownership to now being the full period living there plus just the final 9 months of ownership. In other words, if you move out of the property and haven’t sold it within nine months, a portion of the profit you make on the sale is not covered by the relief and becomes taxable, at up to 28%.

On top of this, there are changes to the Letting Relief. This is a relief which allows part of the capital gain arising to be reduced where the main home has been rented out. The total capital gain is reduced by the lowest of the following amounts:

  • the amount of gain attributable to the period when the home was let. (To calculate this, the total gain on the sale is time apportioned based on the period it was let compared to the total ownership period);
  • the amount of PRR that can be claimed; or
  • £40,000.

Crucially, you didn’t have to be occupying the property whilst it was let so it is a really valuable relief, especially for accidental landlords.

From April 2020, this relief will only be available to those sharing the occupancy of their main home with a tenant throughout the period of letting, so the value of the relief is massively reduced. This could have a serious impact on anyone selling their properties after April 2020 where they have previously been let out.

There’s a lot to think about and talking to us should help you find your way through this minefield. It’ll be really important for you to understand your liabilities selling in the current tax year compared to next. You could find yourself very easily in a situation where accepting a lower price to sell before next tax year results in you actually receiving more after tax proceeds.