Accidental landlords could be nipped by a higher capital gains tax bill following the Budget announcement last week which is due to kick off in April 2020.
In a shift that could shake landlords, Phillip Hammond announced that he has proposed to relinquish the so-called 'letting relief' - a current, complex tax relief for landlords who let a home, or homes, that they don’t reside in.
Currently, homeowners who let a home they have resided in, can back claim it for the last year and a half the ownership, thus reducing their capital gains tax bill. However, in the future it will only be open to those living in shared occupancy for a period of nine months – this is move fuelled by a forecast to raise an additional £150 million by 2023.
What does this mean in monetary terms?
Homeowners who sell up, will not pay capital gains tax due to the fact that they receive private residence relief.
However, homeowners who reside in their property and then move out to let it out, will have to pay capital gains tax when they sell the property down the line. Under the current system people can claim lettings relief on a property regardless of the fact that they haven’t lived in it for a long time.
In short, landlords would be slightly worse off under the new ruling, with the exception of people in care or with disabilities’ where the final ownership period will remain at 36 months.
The Chancellor additionally announced that first-time buyers buying shared ownership homes will be exempt from stamp duty on homes up to the value of £500k. This follows the stamp duty anomaly of up to £300,000 that was implemented last year.
In summary, the lettings relief change will not affect people who occupy the properties they own, or for that matter landlords who have never resided in the property they are renting out to tenants.
Shaun Drummond, Sales Director of Harrods Estates comments: “We are relieved that there is no extra stamp duty to overseas buyers for residential property, but disappointed that the 3% extra stamp duty has not been cut or even reduced for second-home buyers and buy to let investors.
On the upside, first-time buyers of shared ownership properties will be exempt from stamp duty of up to £500,000, which will hopefully incentivise the young market to get on the ladder, and in turn have a knock-on effect and increase in the volume of purchases further up the chain. Ultimately, we are hoping that this should readdress the huge drop in residential sales transaction volumes, particularly in London and the south east.”
The Budget in bullets:
Housing and neighbourhoods
- Family homes are out of Capital Gains Tax, but changes to lettings relief come 2020, especially on second home owners so those who let get less of a capital gains tax relief when they sell
- £675m of co-funding to help councils to transform the high street, and more flexibility on usage class to transform retail spaces to residential homes
- Business rates to be cut by one third for firms that have a rateable value of less than £50,000 - ahead of the next revaluation in 2021
- £500m for the housing infrastructure fund
- All first-time buyers of shared ownership properties will be taken out of stamp duty (up to £500k) – and will be retrospective
- £1bn for SME housebuilders
- £1.5bn of new investment to support he governments industrial strategy
- Half of £60bn expenditure of infrastructure spend is paid for by the private sector
Other budget news of interest
- Hammond announces, ‘Amazon tax’, which taxes profitable tech giants on all UK generated revenues – this will be introduced in April 2020 raising £400m a year
- Qualifying period for Entrepreneurs Relief increased from one to two years
Key Economic stats
- Philip Hammond says borrowing this year will be £11.6bn lower than forecast at the Spring Statement. It is then set to fall from £31.8bn in 2019/20 to £26.7bn in 2020-21, £23.8bn in 2021/22, £20.8bn in 2022/23 and £19.8bn in 2023-24 - its lowest level in more than 20 years
- OBR fiscal finding: “Deficit down… to less than 1.4% next year and falling to just 0.8% by 2023-4.”
- Growth going forward will be "resilient" says Philip Hammond, improving next year from the 1.3% forecast in the Spring Statement to 1.6%.
- In 2020, he expects 1.4%, 1.5% in 2021 and 22 and 1.6% in 2023