Lettings relief is a potentially valuable relief that is available to those who let out a property which has at some point been their only or main residence. However, the opportunity to benefit from the relief in its current form may be time limited – the Chancellor announced at the time of the 2018 Budget that the relief is to be curtailed from April 2020. From that date, it will apply only where the owner of the property is in shared occupancy with the tenant. The Government are to consult on the details.
Nature of the relief
Under the rules as they currently apply, lettings relief is available where a gain arises on the disposal of a property which
The amount of the relief is the lowest of the following three amounts:
Tom owned his flat for 5 years, realising a gain on sale of £200,000. He lived in it as his main residence for the first two years and let it out for the last three.
The first two years qualify for private residence relief, as does the last 18 months, which benefits from the final period exemption. Private residence relief is therefore £140,000 (3.5/5 x £200,000).
The remainder of the gain (£60,000) is attributable to the letting.
Lettings relief is the lower of:
Tom claims lettings relief of £40,000. As a result, only £20,000 of the gain is taxable (£140,000 being sheltered by private residence relief and £40,000 by lettings relief).
All that is known so far is that lettings relief is to be curtailed from 6 April 2020. From the same date, the final period exemption is to be halved to nine months; this will impact on the private residence relief available.
If a disposal of a property currently qualifying for lettings relief is on the cards, it may be beneficial to sell before 6 April 2020 rather than afterwards.
Partner note: TCGA 1992, s. 223(4); 2018 Budget Red Book para. 3.41.
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