Have you moved into the farmhouse and rented out your former home?
It’s commonly part of a farming partnership’s succession planning for one family to move out of their home and into the farmhouse, in order to oversee farming operations.
For those who have done that and who are now renting out their former home, the Chancellor is removing a valuable capital gains tax relief, worth up to £22,400 for a couple. This is the latest in a number of tax hits for landlords over recent years.
Currently, if you sell your former home, in principle that triggers a liability to capital gains tax. However, a number of exemptions and concessions may be available – most importantly, private residence relief on account of the period when the property was your home.
In addition, you may be able to claim lettings relief where you have rented out your former home. The maximum claim is £40,000 for each individual, £80,000 for a couple. The tax rates for residential properties are currently 18% and 28%.
In the Budget, the Chancellor announced a measure to reform lettings relief so that from April 2020 it only applies to those who live in shared accommodation with the tenant – i.e. not those who have moved out of the property. Moreover, the decision to reduce the final period exemption from 18 months to 9 months and the requirement to pay tax within 30 days of a sale, will both increase the impact of the reform to lettings relief.
These reforms will also catch accidental landlords who have struggled to sell their former home.
We are yet to see the full detail and whether the relief will be lost entirely – the use it or lose it rule.
So, what can be done?
If you’re thinking of selling your former home, then you may want to ensure you complete before April 2020.
If you’re not thinking of selling, you may want to consider transferring the property to the next generation or into a family trust before April 2020 in order to crystallise existing reliefs. This may form part of a wider discussion regarding your longer-term planning and other factors (and other taxes) will be relevant, including whether or not the property stays on the partnership balance sheet.
Nick Palmer is a solicitor in the private client team at Barker Gotelee, solicitors in Ipswich.
This article previously appeared in the East Anglian Daily Times, 10th November 2018.