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New changes to tax legislation from 6 April 2014

by Sable International | Mar 14, 2014
  • Changes to reliefs that will help reduce your Capital Gains Tax bill for the non-business portions of your rental property will be implemented on 6 April.

    The new reliefs will help reduce your Capital Gains Tax bill for the non-business portions of your rental property. These reliefs include:
    • Exemptions for the period of time you lived in that property as your main residence.
    • A tax reduction for the period of time that the property was rented, which recognises that the income was taxed as a rental business (Letting Relief)
    • An exemption for the final three years of ownership. 
    These reductions to the capital gains subject to tax are all available, provided that the property was classed as the owner’s only main residence at one point in time. 

    From the 6th April, the latter of these reliefs will change. Instead of the final three years of ownership being exempt from tax (regardless of whether the owner lived there during those last three years), this will be halved to the final eighteen months instead. 

    For example, if a property that cost £200k 16-years ago was recently sold for £800k and was lived in for 1,000 days and rented out for the remainder, the following reliefs would be available:

    • £100k for the period of time that the owner lived in the property
    • £40k for letting relief (the lower of the gain, £100k residence relief, or £40k)
    • £113k for the final three years of ownership 
    • £10,900 for the Annual CGT Exemption.

    The owner would have a chargeable gain of £336k taxable at 28%. However, if the sale was completed after the 5th April, the third relief would be halved. That would mean an extra capital gain of £56k and additional tax to pay of £16k.

    Therefore, if you are in the process of selling a property which you have not lived in for the entire time you owned the property – and for which you will be entitled to Principal Private Residence relief – it would be in your best interests to see that the contracts are exchanged by 5th April and not a day later.

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