Autumn Statements brought a number of changes, including one that will not be welcome amongst landlords, in particular so called ‘accidental’ landlords.
The Government is changing rules to the capital gains tax (CGT) that may hit many families who decided to let out their old home while moving somewhere else. The current rules allow CGT relief to be claimed for 3 years after the family moves out and then sells the property. This period is going to be cut to 18 months only meaning some of the owners will be hit with a higher tax bill
Alex Henderson, tax partner at PricewaterhouseCoopers, explains how the new rule will work:
“Assume a person bought a house five years ago for £100,000. It is now worth £500,000. They lived in it for two years when they moved to another part of the country and let it out while they rented in their new location. They now sell their old home.”
"Their gain is £400,000. Previously there would be an exemption for two years of real occupation and three years of deemed occupation so they would not be taxed. Now there is only an exemption for a total of three and a half years."
So, they would end up paying CGT on 30% (which is 1.5 years divided by 5 years) of 400,000 gain they made (400,000 * 30%). The actual tax would then depend on their total income and whether they would be paying lower or higher CGT rate.
You can read more in The Guardian and and The Telegraph. Please ignore the fact that the above explanation suggests someone has made £ 400,000. I guess this would not be a typical house in Wales. Though, if someone knows of such example I would be interested to hear. You can email me email@example.com
Photo courtesy of 401(K) 2012