Letting relief removed in 2020

red4321

As typical " accidental landlords" we have ended up renting out our last family home. Under the present capital gains rules, as we lived in it for 1/2 the time, and rented it out 1/2 the time, we currently have no Capital gains Liability. Thats based on:
Total capital gains in 28 years 180K:
Residential relief 180k x 50% = 90K
Letting relief capped at 2 x40K as I own with my spouse.
Capital gains allowance 2 x~12K
So nothing to pay.

The changes proposed for April 2020 wil remove the Letting relief, instantly adding 80K CGT at 28% if we then dispose of the property. ( and cut the last 18 months relief to 9 months)
We have long term good tennents, is there any Legal way to crystalise the capital gain before the change so we dont have to serve notice and sell up the property ( or take a 22K Tax hit on sale? )

G_M

'Bed and Breakfast'.


Sell the property now (to the tenants? To family? To me?) and then buy it back at the same price in, say, a month's time.

ProDave

We will be in the same boat, though not as bad as the letting period is small compared to the private residence period.

However we are now trying to "encourage" our tenants to buy it sooner (they are renting with the declared intention to buy it). The problem they have is they need 3 years accounts to get a mortgage to buy it (as they are self employed) and that 3 years is not up until April 2020 so too late to miss the tax change.

I have crunched the numbers and in our case the CGT that would be due might just fall under 2* CGT allowance, so we might just get away with no or just a small CGT bill as long as the eventual sale is not too long after that date.

What irks me, is in the REAL world it has not gone up in value at all in the period it has been let. All the gain occurred pre 2008 when we were living in it, but the rules just take the purchase and sale price and assume a linear gain throughout the period of ownership.

Crashy_Time

ProDave wrote: »

We will be in the same boat, though not as bad as the letting period is small compared to the private residence period.

However we are now trying to "encourage" our tenants to buy it sooner (they are renting with the declared intention to buy it). The problem they have is they need 3 years accounts to get a mortgage to buy it (as they are self employed) and that 3 years is not up until April 2020 so too late to miss the tax change.

I have crunched the numbers and in our case the CGT that would be due might just fall under 2* CGT allowance, so we might just get away with no or just a small CGT bill as long as the eventual sale is not too long after that date.

What irks me, is in the REAL world it has not gone up in value at all in the period it has been let. All the gain occurred pre 2008 when we were living in it, but the rules just take the purchase and sale price and assume a linear gain throughout the period of ownership.

Bigger price drop?

ProDave

Crashy_Time wrote: »

Bigger price drop?

Don't be silly.

The issue is the length of time you need to be trading as self employed to get a mortgage. Asking for a smaller mortgage does not shorten that time.

haras_nosirrah

It is possible to get mortgages with 2 Yr self employed. It is even possible with 1 Yr self employed. Your tenants need to talk to a broker

ProDave

haras_nosirrah wrote: »

It is possible to get mortgages with 2 Yr self employed. It is even possible with 1 Yr self employed. Your tenants need to talk to a broker

The 2 year milestone will pass next April. That is when we are hoping they can try seeking a mortgage in order to buy it before the tax deadline.

It may be the 3 years they have mentioned is to give them enough time to save enough deposit.

silvercar

G_M wrote: »

'Bed and Breakfast'.


Sell the property now (to the tenants? To family? To me?) and then buy it back at the same price in, say, a month's time.

That would incur legal costs, valuation fee, mortgage fee and possible stamp duty.

Also, most mortgages require that the "sellers" of the property have owned it for at least 6 months.

haras_nosirrah

I am in the same boat and considering selling the btl property I own

bought for 170k in 2007
let out in 2010 so 3 yrs owned out of 11
worth about 210 - 220k now

so factoring in buying and selling costs about a 35-45k gain

I get one lot of capital gains tax allowance so the loss of the private lettings relief is going to hit me quite hard.

The property I rent out has been to the same tenant who has had limited increases in rent so the property is below market rent and is now on benefits due to health. I am not sure how he is going to find another rental property and will probably have to go for council accommodation meaning I will probably have to go down the court and bailiffs route

Not what I wanted to do

chucknorris

Another consideration is where do you invest the equity? My knee jerk reaction on hearing about the tax relief changes was to sell most of my property next year. Due to my age (nearly 61) I am at/approaching the right age to sell up and move to safer/less hassle investments anyway.

The lost additional tax that I would pay if I don't sell is about £43k, so that is an extra £43k net. But the thing is that if I stay invested in the properties would recover that £43k in 3-4 years anyway (by what they earn in addition to where I would invest the equity, which would be in bonds, as I have plenty in equities already). So I'm thinking that I will just sell one property, as originally planned anyway. Possibly 2 if by some fluke we end up with a smooth Brexit and property prices are not hit.

dimbo61

You get the allowance £11,500 each year so if you sell one this year and one next you save on the tax bill.
If one was your main residence then sell that one first to get the £40,000 relief before it goes