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