Letting Relief for Landlords Looks Set to be Scrapped
Letting Relief for Landlords Looks Set to be Scrapped
Lettings relief for buy to let landlords looks set to be abolished says David Lawrenson of LettingFocus.com.
This is a shame because we had all expected that maybe in the budget Mr Hammond might do something nice for buy to let, like cutting capital gains taxes for landlords who let to tenants for terms of three years or more or if they sell to their tenants. (Our last blog post reported that the Treasury were considering this).
Instead, landlords look set to have another rather neat tax break taken away.
This one will hit accidental landlords severely – people who have let out a place where they used to live.
Mr Hammond has announced changes to the rules governing lettings relief.
Letting Relief for Landlords
This was a rather smart capital gains tax break that is available to anyone who lets out a property that is, or was in the past, their primary residence.
It has been possible to claim a maximum £40,000 in letting relief against capital gains tax when a let property is sold, rising to £80,000 for a couple, if you ever lived in it. This was in addition to principal private residence relief.
Lettings Relief Scrapped
But from April 2020, subject to a consultation, owners will only qualify for this relief if they occupy the let home alongside the tenant, in other words, effectively letting out rooms.
Also, whilst currently, sellers receive capital gains tax relief for the last 18 months that they own the property, from 2020 this “final period exemption” may be halved to nine months.
I had expected lettings relief to be axed years ago – because few people outside professional landlords and their accountants really understood it or even knew of its existence. Indeed I was quoted on Saturday, in the Financial Times saying this:
“Lettings relief has been ripe to be picked off by the Treasury. “It’s relatively little known apart from by accountants and smart landlords and therefore quite a clever move by the chancellor. People will think: ‘why did they get it anyway?’ But it’s quite a significant hit for amateur landlords.”
This is a big hit. The change will mean higher capital gains tax for almost every landlord who has lived in (or who planned to live in) any house they are now letting or plan to let in the future.
The move will have the effect of discouraging people called “flippers” moving into a home for a brief period before selling it to get letting relief. Fair enough I guess. But genuine homeowners will also be discouraged from letting too.
Lettings Relief Scrapping Will Increase Rents Over Time
I forecast the size of the rental market will shrink further, which will lead to upward pressure on rents.
Lots of accidental landlords, especially those who have seen their properties go up in value a lot, will now be planning to evict tenants, move into their properties, prior to selling them, before April 2020. Again, this will further reduce the size of the private rented sector.
The long line of various tax assaults on landlords, of which this one is the latest, are all going to create a rather big problem of shortage of supply as landlords increasingly sell out some or all of their portfolios and would-be landlords decide it’s no longer worth joining the sector.
So, I can see this causing a bit of a rush to exit prior to April 2020, though after that date, faced with higher capital gains tax bills, landlords may simply just not sell at all. So, less homes coming onto the residential sales market after 2020.
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