Accidental landlords warned of 2020 tax changes
So called ‘accidental’ landlords are warned that they face a big tax bill should they wish to sell their property a year from now.
More than half a million people could be hit with the capital gains tax bill, following government proposals to scrap relief for landlords who decide to sell a property that was previously their main home.
The proposals, which would come into force in April 2020, are expected to raise £470 million for the Treasury and experts warn that they could lead to a rush of house sales over the course of this year.
The new charge would mainly hit accidental landlords. These are people who never intended to rent out property but found themselves with a home to let as a result of an inheritance, being unable to sell or moving in with a partner.
The change will be a particular issue for landlords who wish to sell but are currently tied into a fixed rate mortgage.
People who sell an investment property pay capital gains tax on the profit. Currently, if the property was once their main home, they only pay tax on its rise in value since moving out. For tax purposes, landlords are allowed to add 18 months to the amount of time they lived at the property.
The move follows cuts to lettings relief for landlords. Currently, a landlord who sells their former home after renting it out can shelter £40,000 of their profit from capital gains tax, or up to £80,000 if a couple. New rules mean that from April 2020 the benefit will only apply to landlords who live in the property with their tenants.
Jonathan Stevens is a higher rate taxpayer who became an accidental landlord in 2016 after moving home to accommodate a growing family. His flat cost £300,000 in 2010 but is now worth £525,000. If he sold now the tax bill would be £4,550. But if he sold in April 2020, under the new rules, it would be £20,475.
He said: “I can’t sell now as I will have to pay an early redemption penalty on the mortgage. I am no longer making any profit on the rent and I can’t claim lettings relief.”
Accidental landlords who wish to sell their property in future are advised to consult an accountant or property tax specialist.
Read more about this story on the This is Money website.