On the 9 July, David Rickwood Personal Tax Director for Shaw Gibbs posted the top 10 tax considerations residential landlords need to take into account.

Following is my answer to David’s first question – Are you aware of the PPR/ Lettings relief changes which are due to be introduced with effect from April 2020?

If you own a rental property that you once lived in as your main residence then you should qualify for Principal  Private Residence (PPR) and Lettings relief on the sale of the property, the amount of relief will vary. Where PPR relief is available full relief is currently given for the years you lived in the home, as well as a final period exemption of 18 months. 

Lettings relief is then also currently available on any periods when the home was let, it doesn’t cover any proportion of a chargeable gain arising when the home is empty. The 2018 Budget announced that the government would consult on changes to both PPR relief and Lettings relief from April 2020. The proposed changes are to reduce the final period exemption of PPR by half from 18 months down to nine months (there will be no changes to the 36 month final period exemption available to the disabled or those in a care home). Lettings relief will also be reformed so that relief will only be available in situations where the owner of the property is in shared occupancy with the tenant and will not apply where the whole property is let. 

There is also a proposed change to how the PPR rules operate when a property is transferred between spouses or civil partners. At present if a main residence is transferred from one spouse to another, the transferee inherits the period of ownership from the transferor (provided that the property is used as the main residence at the time of transfer) irrespective of whether the transferee has occupied the property as a main residence for that period. From April 2020 HMRC proposes that the transferee still inherits the period of ownership from the transferor, however PPR would only be available if the transferee was using the property as their main residence and therefore prevents a transferee taking advantage of PPR for a period when they did not own the property.

These changes are not certain, nevertheless it may be beneficial to consider selling a rental property before April 2020 if it was once owned and lived in as your main residence to ensure that both PPR and Lettings relief are maximised on the capital disposal.