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Tax changes could cost ‘accidental’ landlords

Renting out property

The government announced plans earlier this year to curb Private Residence Relief from Capital Gains Tax for landlords who once lived in their rental property. This means that over half a million 'accidental' landlords have until April 2020 to sell up, before they could be hit with new tax bills for thousands of pounds.

An ‘accidental’ landlord is someone who didn't buy a property with the intention of letting it out, but has since ended up doing so, maybe because they inherited the property, haven’t been able to sell, have relocated or moved in with a partner.

If you rent out a property that was once your main home, tax is calculated on the gain in value since you left. Currently, for tax purposes, landlords can also extend the time they lived at the property by 18 months.

From April next year, this extension will be reduced to nine months. At the same time, the government is also scaling back Letting Relief. Currently, when a landlord sells their former home after renting it out, they can shelter £40,000 (up to £80,000 for couples) of their gain from Capital Gains Tax. From next April, only landlords who live in the property with their tenants will qualify for this relief.

By introducing these measures, it is estimated that the Treasury will raise £470million over five years7.

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7RSM, Apr 2019