Question: I have a second home that I let out.
I’ve been told that if I don’t sell it this year I could face a huge tax bill, is that right?
Mr B Forrest – Hastings
I believe what you have been told about is the removal of Lettings Relief for Capital Gains Tax (CGT) which is due to happen from 6 April 2020.
If you sell a property that has always been your main home, providing you have not lived in another property during the time you owned this property, you get what is called Principle Private Residence Relief (PPRR), which will reduce your CGT bill on this disposal to zero.
However, if you spend time away from this property, for example because you have moved to a new home but have not needed to sell your first home, your PPRR is reduced to a proportion of the time lived in the property compared to the overall time of ownership. Therefore, you could see a significant CGT bill following the sale.
If, however, during this unoccupied period the property was let out on a commercial basis, you would currently receive Lettings Relief, which would reduce your taxable gain by up to £40,000 and could result in a tax saving of up to £11,200.
As mentioned above, this Lettings Relief is being removed starting 6 April 2020, therefore the tax bill following the sale of the property has the potential to increase substantially depending on when the sale is made.
There are a number of other CGT changes regarding the sale of residential properties in addition to the issue above that will be coming into effect from April 2020, so if you plan on selling any property or are undertaking any other large financial transaction, it is advised that you seek the advice of a professional ahead of time to avoid any potential pitfalls.
If you would like to arrange a free consultation to discuss your tax position or require any other assistance, please contact Gemma Newstead on 01424 720222 or email her at GemmaN@ashdownhurrey.co.uk.