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East of England accountancy firm, Moore Thompson, is warning landlords, property investors and home sellers to prepare for costly changes to taxation next year that could lead to additional tax being taken from the disposal of properties they own.
From 6 April 2020, the date on which Capital Gains Tax (CGT) must be paid on gains arising on the sale of residential property is changing.
After this date, taxpayers will have only 30 days to file a CGT return and make an advance payment towards their tax bill where CGT is due.
This differs drastically from the current rules, which allows people to pay CGT on the disposal of a property up to 22 months after the sale as part of the self-assessment cycle.
Most people will not pay CGT on the sale of their main home thanks to Principal Private Residence Relief, but some larger properties and second homes do.
At the same time, Lettings Relief will be restricted to those property owners who have shared occupancy of a property with their tenant at some point during their ownership.
Heather Bright, Tax Partner at Moore Thompson, said: “Currently, taxpayers who let a property that either is currently or used to be their main residence can claim Lettings Relief of up to £40,000 when they sell that home.
“However, under the new system, to benefit from this tax relief, they will have to pass a shared occupancy test, which will prove that they were living in the property at the same time that it was let, this can be difficult in many situations.”
Heather said that this change had the potential to affect the growing number of ‘accidental landlords’, such as people who have lived in a house for years, but who have decided to rent out their home before they sell it or those who have inherited and used the home as a rental property for a short time.
“Key changes also come into effect next April in respect of Principal Private Residence Relief (PPR), which will shorten the Final Period Exemption (FPE),” said Heather.
“Landlords will be exempt from paying CGT on the gains made in the final nine months of ownership, instead of the final 18 months, as is currently the case if they have lived in the property at some point during their ownership of it. This shorter period means that many could find themselves exposed to a higher tax bill.
“There are however no changes to the 36 months currently available to the disabled or those in a care home.”
These changes to the taxation of property come after recent restrictions to relief on mortgage interest, which have made property investment far less attractive to many people.
“These steps are likely to further restrict the number of landlords and investors out there, as it will make the process of owning and disposing of an investment/residential property less tax-efficient,” Heather concluded.