Landlords must be feeling pretty aggrieved by now, having been targeted not once, but twice, in recent years.

Tax relief for finance costs and 3% second property surcharge

As you’re probably aware, tax relief for finance costs relating to residential properties has been falling over the last 3 years. As of 6 April 2020, it will be totally restricted to a basic rate tax deduction. This was part of a dual-pronged approach by the Government to dampen down the buy-to-let market, and came in along with the 3% surcharge on second properties. These combined measures hit the market hard, but the Government isn’t quite finished with landlords yet.

Lettings relief

Lettings relief is currently available where either a part of or the whole of an individual’s main residence is rented out as residential accommodation.

On sale, any capital gain on the sale of the rented out part is reduced by the lower of:

  • £40,000
  • the amount of the gain that is exempt under Private Residence relief
  • the amount of the gain attributable to the part that is rented out.

However, from 6 April 2020, lettings relief will only be available if the landlord remains in residence (i.e. is in shared occupancy) with the tenant. It will not, therefore, be available where the whole of the main residence is rented out.

CGT payment date brought forward

From that same date, the CGT due on the sale of a residential property disposal will need to be paid within 30 days of making that disposal. Again, this will hit landlords the hardest as it will only apply where the property is not exempt as a principal private residence. Rather than being able to wait until 31 January following the end of the tax year in which the gain is made, they’ll have just 30 days to pay the tax due.

Who needs to know?

This blog post is relevant to those of you studying AF1, AF4 and AF5 – with the measures coming in on 6 April 2020 likely to be examined from the October 2020 sittings.