Capital Gains rules are changing!
If you are a property investor or “accidental” landlord this is the blog for you. From the 6th of April 2020 the changes to Capital Gains tax rules will affect the sale of second homes and rental properties.
Capital Gains Tax
Capital Gains Tax is paid at the following rates:
- 18% for the basic rate taxpayer
- 28% for the higher rate taxpayer
The current rule means that if you sell your property in the tax year, you will pay your Capital Gains Tax in the January after it is declared on your tax return. The new rule means that you need to declare the sale to HMRC and pay the Capital Gain within 30 days of the sale. This will need to be carefully planned by unsuspecting landlords.
Get your house in order
No doubt, there will be penalties from HMRC with those who do not comply. We are keeping our fingers crossed that letting agents have informed their Landlords of these new changes.
If you are a property investor and are in the position where you have not declared your rental income, please take a look at our recent blog – “Have you received HMRC’s Love Letter?”
Other changes include PPR (Principle Private Residence) Relief. This is the relief that enables taxpayers to sell their homes without having to pay Capital Gains Tax. If you buy and move into a second home, the final period of exemption for PPR relief is going to be reduced from 18 months to 9 months.
This applies to Landlords that let privately. However, with the new rules starting in April and the restriction on mortgage interest, trading through a Limited Company could be the answer for property investors for the following reasons:
- 19% Corporation Tax if you sell the property, rather than 28%.
- Full tax relief on the interest of the loan
Pros & Cons
As with most things there are pros & cons. We can help you make informed decisions on how you want to invest and join the exciting world of being a Landlord. Despite HMRC doing their best to penalise Landlords, with the correct set up and letting partners, renting property can be very rewarding.