Will Landlords sell their Buy-to-Let properties before the tax changes take effect?
Will landlords sell their Buy-to-Let properties before the tax changes take effect?
As the latest set of tax rules will effect tax bills from April some landlords may consider that their already squeezed returns are no longer sustainable and decide it’s time to sell and cut their losses despite the weak market.
House price growth has slowed to its lowest level in almost a decade, according to figures released by the Land Registry last week, with prices falling by 2% in the South East and 2.9% in the North East. Property transactions have dropped by 12% since this time last year.
From the new tax year in April, valuable tax reliefs will no longer be available which could result in landlords paying tens of thousands of pounds in additional tax when they eventually decide to sell.
This is just one of the latest tax reforms in the buy-to-let market that have crucified landlords profits. These include the phasing out of tax breaks on mortgage interest payments, dilution of the valuable “wear and tear allowance” and tighter regulation of the eviction of problem tenants.
Anyone thinking of selling in the near future should consider selling sooner rather than later if they want to avoid the diminished capital gains tax relief.
One change is that private residence relief will be cut in half. This tax break exempts any growth in the value of a second home from tax for the final 18 months of ownership. It protects those who have moved into a new home before selling their old one. From April, the window for these accidental landlords to complete their sales will shrink, meaning property investors will be forced to pay tax on an additional nine months’ worth of capital gains – at a rate of 28%.
Lettings relief is also changing. The lesser-known tax break allows homeowners to claim up to £40,000 in capital gains tax protection on a main residence that was also let for a certain time, benefiting people who move in with a new partner before selling their own home, for example, or work abroad for a year. From April, reforms will narrow the relief so that it applies only to homeowners who are sharing their home with their tenant.
If you are not aware of how the tax changes affect you, speak to your accountant or tax adviser as soon as possible as property is taking longer to sell so you do not have long to make a decision.
If you require an updated valuation of your property to help you make the decision contact either Roger Waring from our Sandwich Office or Gill Taylor in Canterbury.
For more information on Landlord tax click below -
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