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Lettings Relief & Private Residence Relief changes

Do you have a rental property? Are you thinking of selling? Property tax

Did you know changes to Private Residence Relief (PPR) and Lettings Relief are being brought in by HMRC from 6th April 2020?

When you sell a property for a profit you could be liable for Capital Gains Tax on any gains made at 18/28%, depending on what tax band you fall into.

These gains can be reduced if you have lived in the property as your main residence by claiming Private Residence Relief and again further if you have been letting the property by claiming Lettings Relief.

Overview of the Current Rules

Private Residence Relief

Private Residence Relief is calculated as follows:

Gain × (Total time occupied)/(Total time of ownership)

The total time occupied can be made up of actual occupancy and deemed occupancy.

Actual occupancy is derived from any periods that you were living in the house and it was your main residence.

Deemed occupancy is granted for the final 18 months of ownership whether you were living there at the time or not.

Lettings Relief

Lettings relief is an additional deduction for landlords who have let all or part of their house as residential accommodation. The chargeable gain is reduced by the lesser of:

  • An amount equal to the Private Residence Relief exemption, and
  • The gain attributable to the let period; Gain × (Total time rented)/(Total time of ownership), and
  • £40,000

Changes in Rules from 6th April 2020

From 6th April 2020 the following changes will be in place:

  • Private Residence Relief – this will reduce the final period exemption from 18 months to 9 months.
  • Lettings Relief – this will be reformed so that it only applies where an owner is in shared occupancy with a tenant.

Possible Planning Action Before 6th April 2020

To maximise your tax reliefs and based on the above information, you may wish to consider disposing your rental property before these new rules are introduced on disposals made on or after 6th April 2020.

If you would like to discuss the options available to you with a member of our tax team, then please contact our office.

01908 219100

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Posted in: HMRC, Private Residence Relief, Tax, Uncategorized