Thursday, 15 November 2018
There has been a lot of media attention on an announcement in the 2018 Budget about "lettings relief", but much of the coverage has misunderstood what has really changed.
Under current rules, if you live in a house for 10 years, and then rent it for 5 years, and then sell it, there are generous exemptions from Capital Gains Tax (CGT) on the profit you make on the sale.
Some media coverage has suggested that the government have announced that they will remove "Main Residence Relief" from 2020, unless you lived in the property at the same time as the tenant. This is NOT the case. Any period where you the property was your main residence will still be exempt.
What HAS changed is that only the final 9 months of ownership will be exempt from CGT, rather than 18 months. This seems reasonable - it doesn't usually take 18 months to get a property ready to sell, and then sell it.
The confusion arises because the government have announced a change to another CGT exemption called "Lettings Relief". This is a complex tax relief, worth up to £40,000, and it gave more protection to homeowners who had moved and decided to rent their home out rather than sell it. It operated in addition to the "Main Residence Relief" mentioned above. This Lettings Relief WILL now only be available in situations where the homeowner and the tenant lived in the property at the same time. This will impact some homeowners.