The government has introduced changes in Capital Gains Tax that have come into effect from the 6th of April-2020. In this article, we’ll discuss changes to Private Residence Relief and Lettings Relief in detail. So, let’s begin!
Changes to Private Residence Relief
As per new changes, the Private Residence Relief or PRR has been reduced to 9 months from earlier 18 months for the tax year 2020-21 and beyond. It means that if you sell a property which was your main residence at any point during the entire ownership, you can claim a PRR for the following periods:
- For the duration of main residence
- Final 9 months
As per new changes, you’ll be only entitled to letting relief for the time period during which you’ve lived in the property with your tenant – shared occupation. In layman words, you’ll be only entitled to lettings relief if you have lived with the tenant.
It means that those property owners who have rented their properties after moving out completely from the property will not be entitled to lettings relief anymore. It’s worth mentioning here that new change to letterings relief is retroactive – those property owners who have not been residing in their properties for a greater period of ownership, or have only rented their property for a shorter span, will not be entitled to a maximum relief of £ 40,000.
These uninvited changes seem worrisome but you need not worry as there are solutions.
- The easiest method will be moving into the buy-to-let property to get Private Residence Relief. Now, this translates into getting a buy-to-lget mortgage, converting it into a residential mortgage, and then staying in that for a minimum duration of 1 or 2 years. Doing so will not only let you get Private Residence Relief but will also reduce the tax considerably.
- Another way is to move your family in with you. For instance, your children get married and they have moved out, you allow them to move in and charge rent. Doing so will get you entitled to Lettings Relief at the time of the sale of the property.
- The third and most plausible way of getting tax relief worth £7500 is to rent the property to a tenant whilst you are living there. Doing so will not only get you this massive tax relief but will also get you entitled to Lettings Relief if you decide to sell out your property.
- If you are a married couple or in civil partnership you can transfer beneficial rights to your spouse/civil partner through a deed of trust in order to qualify for 2 letting reliefs up to £80,000.
If you are looking for highly-qualified, experienced, and chartered tax advisors to sort out letting relief for you and save thousands of hard-earned pounds legally, contact us.