Tax break for landlords to be axed in rule change that scraps ‘lettings relief’ for those who rent out their former home
- Experts say the changes will affect divorcing couples
- Tax break will only apply if the owner lives in the same home as the tenant
- The changes are expected to come into force in April 2020
Thousands of landlords will lose a lucrative tax break under measures unveiled in the Budget.
Couples going through a divorce could lose thousands of pounds because of the changes, experts said.
At present, people who rent out a property that used to be their main residence receive ‘lettings relief’ on the capital gains tax that must be paid when they go on to sell it.
Philip Hammond said he was changing the rules so that many of these people no longer receive the tax break.
In future, lettings relief will only apply if the owner of the property lives in the same home as the tenant.
Chancellor Philip Hammond pictured outside 11 Downing Street, London, before heading to the House of Commons to deliver his Budget where he announced the rule change
Experts say the changes will affect divorcing couples who moved out of the former family home while retaining ownership and renting to tenants. It will also affect those who decided for other reasons to rent out their former home.
Critics said it would make the buy-to-let market even less attractive. Landlords can currently claim up to £40,000 in lettings relief when a property is sold, covering the period when it is rented out. This is potentially worth £11,200 in saved tax.
The Treasury estimates it will raise £150million in extra tax per year by 2023/24 through the changes.
In his Budget speech, the Chancellor said: ‘We re-commit today to keeping family homes out of capital gains tax… [but] from April 2020 we will limit lettings relief to properties where the owner is in shared occupancy with the tenant, and reduce the final period exemption from 18 months to nine months.’
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Iain McCluskey, personal tax partner at professional services firm PwC, said: ‘The reduction in the final exempt period from 18 months to nine months will be of most concern to those who are going through divorce or separation where the former joint owned family home is being sold.
‘The new exempt period of nine months means that those who are going through separation may find themselves dragged into the capital gains tax net if the former marital home is not sold within nine months of the separation.’ Ian Dyall, from financial planning firm Tilney, said: ‘Three years ago, George Osborne hit property investors hard by announcing an increase on stamp duty for second homes and limited mortgage interest tax relief. Today’s announcement is another nail in the coffin for buy-to-ley investors.’
Sam Mitchell, chief executive of online estate agents Housesimple, said: ‘If the Chancellor wants to decimate the rental sector and send rents soaring, then he’s doing a very good job of achieving just that.
‘This will send another shock wave through the industry and have more buy-to-let landlords scurrying for the exit door.’
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