By Mel Hackney

When you sell your home, if it is the only property you own, it is unlikely you will pay any capital gains tax. This is because a relief called Private Residence Relief (PRR) is applied.

If you own a second property and that property is rented out, a relief known as ‘letting relief’ may be available on the second property. The impact of letting relief is to reduce the amount tax payable on the eventual sale of that second property.

At Budget 2018, the government announced that letting relief will be changed with effect from 6 April 2020, so that it only applies where an owner is in shared occupancy with the tenant.

Once implemented this may lead to a significant change in how much tax is payable on the sale of a property, and will no doubt affect many landlords.

For example, Bob owns 2 houses, Acorn Cottage and Highgrove Terrace. Bob lives in Highgrove Terrace and rents out Acorn Cottage. Bob used to live in Acorn Cottage.

Under the current rules, when Bob sells Acorn Cottage, he will be able to claim both PRR and letting relief for the full period of ownership.

However, under the new rules, Bob can no longer claim letting relief unless he lives in the property at the same time as the tenant. As such, if Bob sells Acorn Cottage in 2022, there would potentially be a gain on the sale of the property.

These rules are extremely complex, so can be tricky to interpret. If you would like to find out more about the changes to tax on property, or about any of our services including tax planning, please contact Mel Hackney.