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Further UK Regulatory Changes For Buy-To-Let (BTL) Property Investors

With the 3% increase in stamp duty land tax (SDLT) on second homes and cuts in tax relief where mortgage interest payments are no longer deductible against rental income from 2020 – property investing for private landlords have become less lucrative. Further UK regulatory changes have been proposed which will evidently make property investing within the UK less attractive amongst current and prospective property investors. These suggested changes involve reducing the allowances for lettings relief and private residence relief from April 2020.

From April 2020, lettings relief will only apply for properties where the owner partially rents out a portion of their home to a tenant. Essentially, the landlord is only able to claim lettings relief if he or she is a live-in landlord. Formerly, landlords were given a lettings relief of £40,000 (£80,000 for a couple) who rented out their property (either partially or as a whole).

Similarly, when a property is sold, the seller is subject to capital gains tax (typically 28%). Capital gains tax is calculated on the basis of “chargeable gain”. This is worked out where your gain is deducted from any private residence relief (PRR) the landlord is entitled to. Presently, landlords who decide to sell their property do not pay any CGT for the number of years he or she has lived in the property. In addition to this, a further exemption period of 18 months is applied if the landlord has owned the property for more than 18 months (whether or not the landlord has lived within the property for the last 18 months).

However, Hammond proposes that from April 2020 this exemption period of 18 months will be cut to 9 months. This essentially reduces the amount of private residence relief (PRR) BTL landlords are entitled to if or when they decide to sell after April 2020.

Clearly, if landlords need to sell their property; it would be more cost efficient to sell before April 2020. For any other investment BTL property, the buy and hold approach would work best as you do not intend to sell and thus avoid the capital gains tax altogether.

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