WHAT IS CAPITAL GAINS TAX LETTING RELIEF AND HAS IT BEEN ABOLISHED?
Tom Condon
December 20th, 2023
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Capital Gains Letting Relief legislation used to be a safe haven for landlords and investors looking to reduce their Capital Gains Tax liability. But, since the widely available changes made in April 2020, it’s become far more difficult to achieve – but not abolished.
In order for landlords, investors and homeowners to be able to claim Capital Gains Tax Letting Relief, it will depend on their residential status and usage of the property. Luckily, there is Private Residence Relief (PRR) which is automatically applied to the sale of a residential property.
To qualify for Private Residence Relief (PRR), you must have lived in the property and treated it as your main residence, for at least some portion of the ownership period. The relief is designed to exempt or reduce the CGT liability on the gain arising from the sale of a property that has served as one’s home.
PRR can provide full relief for the final nine months of ownership, extended to 36 months if you are disabled or in long-term residential care.
However, if a property is exclusively let as residential accommodation without shared occupancy, the amount of relief available, including lettings relief, may be limited or eliminated.
Landlords in particular must be careful to assess their situation, consider their months of ownership and any changes in legislation to determine the extent of relief they’re eligible for.
Letting Relief for Capital Gains Tax allows you to reduce the amount of tax you pay when you sell the property, as long as it was your main home at one point in time and you rented the property while you still lived within.
If you did not rent out your property, and sell it then you wont need to pay Capital Gains Tax due to a tax exemption called Private Residence Relief (PRR). This allows you to be exempt from CGT on any profit you make from a house sale.
The current Capital Gains Tax allowance is £6,000, but is set to drop to £3,000 next year. If you do not make a profit above £3,000 then you do not need to declare it to HMRC.
What makes you eligible for Capital Gains Letting Relief?
In order to be eligible for Capital Gains Letting Relief, you will need to have lived in your property at the same time as letting it out to a tenant. If you meet this criteria, then you will receive the lowest of the following:
- The equivalent to Private Residence Relief.
- £40,000 relief,
- The same amount of profit you made while letting out a part of your property.
You will be unable to claim Capital Gains Tax Letting Relief on any profits or gains made when the property was fully let out or empty.
Who is best to ask?
As leading UK property investment sourcer, we have extensive market knowledge and expertise to identify properties with potential Capital Gains Tax advantages such as those eligible for PRR or Lettings Relief. If you need help with your property, get in touch with our team today!
Landlords may find it challenging to claim Private Residence Relief (PRR) on the disposal of their residential property. PRR is a valuable tax relief that applies to individuals selling their main residence, exempting them from all or part of the Capital Gains that arise.
For landlords who let out their properties they must have used the property as their main residence at some point during the ownership period. This means that if a landlord has exclusively let out the property without using it as their main residence, PRR may not be applicable.
The relief is designed to apply to properties that have been used as a residence, and not a business. Letting out the entire property, especially without shared occupancy with tenants can limit or eliminate the availability of PRR.
In order to calculate your Capital Gains Letting Relief, you will need to work out the which is the lowest of the three Capital Gains Tax Letting Relief criteria:
Work out your profit from the property sale
Example: £60,000.
Work out the number of years the property was your main residence vs let out, and then calculate this as a percentage.
Example: Owned the property for 20 years, 15 years as your main residence and 5 years with a part of it tenanted.
You owned the property as your main residence for 75% of the time you owned it, versus 25% of the time it was let out.
Compare the number of years the property was your main residence against the profit you’re eligible for Private Residence Relief.
Example: You’re eligible for 75% of the total profit in PRR, or £45,000.
The amount of profit you made from the property being let out
Example: £35,000.
You have £40,000 in Letting Relief
Out of the three options, choose the lowest value
Example: you are eligible for £35,000 Lettings Relief as it is the lowest value.
Capital Gains Letting Relief is not being abolished, but the law has drastically changed around this legislation. Before April 2020, you could claim Letting Relief of up to £40,000 per owner or £80,000 as a couple, if the property had been let out at some point during your period of ownership.
Under current legislation, you cannot claim Letting Relief unless the property was being let out at the same time as you lived within the property.
You are far more likely to be able to claim Private Residence Relief on a rented property than you are with Capital Gains Tax Letting Relief.
As an investor, landlord, or even a homeowner looking to make smart moves over the next year, we would recommend using your annual Capital Gains Tax exemption sooner rather than later.
Currently it stands at £6,000 but it is set to be slashed to £3,000 in April 2024, this annual exemption does not carry over to the next tax year, so once it’s gone, it’s gone.
You may also be able to offset any gains against your losses within the same tax year, as any unused losses from previous years can be carried forward providing that they had been reported to HMRC within four years from the end of the tax year.
Transfers between spouses and civil partners are exempt from Capital Gains Tax, which could utilise each person’s CGT annual exemption. But, the transfer must be a genuine, outright gift.
How can I optimise my portfolio?
We pride ourselves in assisting all of our landlords and investors in optimising their property portfolios. This could be anything from helping them with navigating Capital Gains Tax, helping them to buy and sell property assets or providing invaluable market knowledge.
If we have peaked your interested, please get in touch today!
Letting Relief on Capital Gains Tax does not cover any proportion of chargeable profit while the house is empty as neither yourself nor your tenant is living within the property.
Capital allowances are a way to claim tax relief on certain types of investments, such as equipment and fixtures within a property. However, the availability of capital allowances depends on the nature of the property and its use.
For capital allowances on furnished holiday lets in the UK, it is possible to claim on some items, including furniture, equipment, and fixtures used for the purposes of the holiday let business.
You should keep detailed records and seek advice from one of our team to determine which items qualify for capital allowances and to ensure you fully comply with tax regulations.
Before April 2020, property owners could claim Letting Relief of up to £40,000 per owner or £80,000 as a couple, even if the property has been let out at some point during their ownership.
However, this legislation went under some significant changes and under current rules, Letting Relief is only applicable if the property was being let out at the same time as the owner lived in it.
Unfortunately, this means that property owners, landlords and investors are less likely to qualify for Letting Relief, and Private Residence Relief becomes a more viable option for those who have rented out their properties.
The Capital Gains Tax annual exemption is currently set at £6,000 but it is set to be slashed to £3,000 in April 2024. This annual exemption is a vital tool for everyone in property to minimise their Capital gains liabilities.
We would recommend that you consider utilising your annual exemptions sooner rather than later, as the unused portion does not carry over to the next tax year.
Additionally, exploring strategies like offsetting gains against losses and making use of other available reliefs such as transfers between patterns can help optimise your tax planning.
Start your property portfolio today!
Capital Gains Letting Relief legislation used to be a safe haven for landlords and investors looking to reduce their Capital Gains Tax liability. But, since the widely available changes made in April 2020, it’s become far more difficult to achieve – but not abolished.
In order for landlords, investors and homeowners to be able to claim Capital Gains Tax Letting Relief, it will depend on their residential status and usage of the property. Luckily, there is Private Residence Relief (PRR) which is automatically applied to the sale of a residential property.
To qualify for Private Residence Relief (PRR), you must have lived in the property and treated it as your main residence, for at least some portion of the ownership period. The relief is designed to exempt or reduce the CGT liability on the gain arising from the sale of a property that has served as one’s home.
PRR can provide full relief for the final nine months of ownership, extended to 36 months if you are disabled or in long-term residential care.
However, if a property is exclusively let as residential accommodation without shared occupancy, the amount of relief available, including lettings relief, may be limited or eliminated.
Landlords in particular must be careful to assess their situation, consider their months of ownership and any changes in legislation to determine the extent of relief they’re eligible for.
Letting Relief for Capital Gains Tax allows you to reduce the amount of tax you pay when you sell the property, as long as it was your main home at one point in time and you rented the property while you still lived within.
If you did not rent out your property, and sell it then you wont need to pay Capital Gains Tax due to a tax exemption called Private Residence Relief (PRR). This allows you to be exempt from CGT on any profit you make from a house sale.
The current Capital Gains Tax allowance is £6,000, but is set to drop to £3,000 next year. If you do not make a profit above £3,000 then you do not need to declare it to HMRC.
What makes you eligible for Capital Gains Letting Relief?
In order to be eligible for Capital Gains Letting Relief, you will need to have lived in your property at the same time as letting it out to a tenant. If you meet this criteria, then you will receive the lowest of the following:
- The equivalent to Private Residence Relief.
- £40,000 relief,
- The same amount of profit you made while letting out a part of your property.
You will be unable to claim Capital Gains Tax Letting Relief on any profits or gains made when the property was fully let out or empty.
Who is best to ask?
As leading UK property investment sourcer, we have extensive market knowledge and expertise to identify properties with potential Capital Gains Tax advantages such as those eligible for PRR or Lettings Relief. If you need help with your property, get in touch with our team today!
Landlords may find it challenging to claim Private Residence Relief (PRR) on the disposal of their residential property. PRR is a valuable tax relief that applies to individuals selling their main residence, exempting them from all or part of the Capital Gains that arise.
For landlords who let out their properties they must have used the property as their main residence at some point during the ownership period. This means that if a landlord has exclusively let out the property without using it as their main residence, PRR may not be applicable.
The relief is designed to apply to properties that have been used as a residence, and not a business. Letting out the entire property, especially without shared occupancy with tenants can limit or eliminate the availability of PRR.
In order to calculate your Capital Gains Letting Relief, you will need to work out the which is the lowest of the three Capital Gains Tax Letting Relief criteria:
Work out your profit from the property sale
Example: £60,000.
Work out the number of years the property was your main residence vs let out, and then calculate this as a percentage.
Example: Owned the property for 20 years, 15 years as your main residence and 5 years with a part of it tenanted.
You owned the property as your main residence for 75% of the time you owned it, versus 25% of the time it was let out.
Compare the number of years the property was your main residence against the profit you’re eligible for Private Residence Relief.
Example: You’re eligible for 75% of the total profit in PRR, or £45,000.
The amount of profit you made from the property being let out
Example: £35,000.
You have £40,000 in Letting Relief
Out of the three options, choose the lowest value
Example: you are eligible for £35,000 Lettings Relief as it is the lowest value.
Capital Gains Letting Relief is not being abolished, but the law has drastically changed around this legislation. Before April 2020, you could claim Letting Relief of up to £40,000 per owner or £80,000 as a couple, if the property had been let out at some point during your period of ownership.
Under current legislation, you cannot claim Letting Relief unless the property was being let out at the same time as you lived within the property.
You are far more likely to be able to claim Private Residence Relief on a rented property than you are with Capital Gains Tax Letting Relief.
As an investor, landlord, or even a homeowner looking to make smart moves over the next year, we would recommend using your annual Capital Gains Tax exemption sooner rather than later.
Currently it stands at £6,000 but it is set to be slashed to £3,000 in April 2024, this annual exemption does not carry over to the next tax year, so once it’s gone, it’s gone.
You may also be able to offset any gains against your losses within the same tax year, as any unused losses from previous years can be carried forward providing that they had been reported to HMRC within four years from the end of the tax year.
Transfers between spouses and civil partners are exempt from Capital Gains Tax, which could utilise each person’s CGT annual exemption. But, the transfer must be a genuine, outright gift.
How can I optimise my portfolio?
We pride ourselves in assisting all of our landlords and investors in optimising their property portfolios. This could be anything from helping them with navigating Capital Gains Tax, helping them to buy and sell property assets or providing invaluable market knowledge.
If we have peaked your interested, please get in touch today!
Letting Relief on Capital Gains Tax does not cover any proportion of chargeable profit while the house is empty as neither yourself nor your tenant is living within the property.
Capital allowances are a way to claim tax relief on certain types of investments, such as equipment and fixtures within a property. However, the availability of capital allowances depends on the nature of the property and its use.
For capital allowances on furnished holiday lets in the UK, it is possible to claim on some items, including furniture, equipment, and fixtures used for the purposes of the holiday let business.
You should keep detailed records and seek advice from one of our team to determine which items qualify for capital allowances and to ensure you fully comply with tax regulations.
Before April 2020, property owners could claim Letting Relief of up to £40,000 per owner or £80,000 as a couple, even if the property has been let out at some point during their ownership.
However, this legislation went under some significant changes and under current rules, Letting Relief is only applicable if the property was being let out at the same time as the owner lived in it.
Unfortunately, this means that property owners, landlords and investors are less likely to qualify for Letting Relief, and Private Residence Relief becomes a more viable option for those who have rented out their properties.
The Capital Gains Tax annual exemption is currently set at £6,000 but it is set to be slashed to £3,000 in April 2024. This annual exemption is a vital tool for everyone in property to minimise their Capital gains liabilities.
We would recommend that you consider utilising your annual exemptions sooner rather than later, as the unused portion does not carry over to the next tax year.
Additionally, exploring strategies like offsetting gains against losses and making use of other available reliefs such as transfers between patterns can help optimise your tax planning.
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