Some of our clients dream of being a landlord and building a property portfolio that will give them income and possibly become a valuable investment for the future. Some property clients, however, never intended to be a landlord but the need to move house forced them into renting their property.

Imagine this: you buy your house in October 1997 for £155,000 (including conveyancer’s fees, etc). You keep the house and let it due to needing to move to a new home in October 2015. Your current rental agreement is coming up for renewal and you would like to take the opportunity to sell the house and stop being a landlord, but if you do so before October 2020 there is an early redemption penalty on the mortgage of £5,000 to pay. What do you do? It raises a lot of questions. How will your Capital Gains Tax position be affected by the delay? Especially, if you pay income tax at a higher rate and the property’s current value of £450,000 is unlikely to change in the next couple of years. If you sell the property on or after 6^th April 2020 – as opposed to now or before then you will have the following impacts, in this example October 2020 being the date when you sell:

• Firstly, the final period exemption available, because you lived in the house before you rent it out, will fall from 18 months to 9 months which will result in £9,620 loss of relief.
• Secondly, Letting relief which is currently available provided you have lived in the house will only apply if you share occupation of their house with a tenant. This will result in £40,000 loss of letting relief which is the maximum.

What does this mean to this Landlord?

• Higher rate tax payer will pay £11,903 more after April 6^th 2020, before the tax bill was £0 i.e. pre April 6^th 2020.

• Please note there are special rules which give 36 months relief to those with a disability, and those in or moving into care, which will not change.

• Overall, what this means you are worse off £6,903 compared to now after you paid early redemption penalty on the mortgage of £5,000 for selling.

Getting the right advice can make a substantial difference to your pocket. Please note this is based on the plans by the government to implement the two changes as stated in the 2019 budget and assuming the annual exemption of £12,000 used in the comparison.