Changes to tax relief for property owners
May 09, 2019
Key Dates Tax
If you let out or sell a property, there are a couple of tax relief updates and changes due to take place which you should be aware of.
‘Rent a room’ relief to continue for Airbnb landlords
Last year HMRC carried out a review of rent a room relief, and it was proposed that the availability of this generous relief would be restricted to situations where the taxpayer was resident for at least part of the time that their lodger was paying rent – see our article from August 2018. The rent a room scheme means that if a house owner rents out one or more rooms in their main residence, then they are exempt from paying tax on gross rents up to £7,500.
HMRC were concerned that this relief was being abused by owners who let out their entire property using websites such as Airbnb, and then lived elsewhere temporarily whilst the tenants were in the property. Their example was renting out a house in south London during Wimbledon fortnight and potentially receiving up to £7,500 tax free.
Despite the consultations on rent a room relief which took place last year, the government has announced that their proposed restriction on property occupation in order to qualify for rent a room relief is now no longer being introduced.
Possible changes to CGT private residence relief
Meanwhile, the government has moved on to consulting on important changes to private residence relief, which are likely to be introduced from 6 April 2020. There are two possible changes, which were announced in the Autumn 2018 Budget:
- Final period exemption to be reduced
For many years, the ‘final period exemption’ prior to disposing of a property lasted three years, and it was always intended to cover situations where the taxpayer was ‘bridging’ and waiting to sell their previous residence. However, 36 months was then felt to be too generous as it was allegedly being abused by a strategy known as ‘second home flipping’ (not least by Members of Parliament!). As a result, a couple of years ago the final period relief was restricted to the current 18 month period of deemed occupation. The latest proposal is to restrict this still further to just 9 months, (although it will remain at 36 months for those with a disability or those moving into, or living in, care).
- Possible Lettings Relief Changes
Lettings relief currently provides a further exemption for capital gains tax of up to £40,000 per property owner. This additional relief was introduced in 1980 to ensure people could let out spare rooms within their property on a casual basis, without losing the benefit of private residence relief – e.g. when there are a number of lodgers sharing the property with the owner.
In practice lettings relief extends much further than originally intended, and also benefits those who let out a whole dwelling that has at some stage been their main residence. It is those situations that the government appears to be attacking under its proposed changes. The intention is that from 6 April 2020, if a taxpayer receives letting relief, it will be limited only to periods when they are in shared occupation with their tenant. Be aware that this change will come into effect overnight with no gradual decrease during the period leading up to that point, meaning that whilst a sale on 4 April 2020 might attract relief, a sale on 6 April would very likely mean no relief at all.
Don’t worry though if you rent out your property temporarily whilst working elsewhere in the UK or working abroad. You aren’t likely to be affected by this change, as there are alternative reliefs available under those circumstances.
Please check with us if these proposed changes may have an impact on you. The change to lettings relief will take place very abruptly, so if you have any existing letting relief potential please consider with us how that potential might be maximised – it may be worth considering disposing of your property before the new rules are introduced from 6 April 2020.