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Accidental landlords ‘have less than a year to sell up before facing new tax bills’

More than half a million ‘accidental landlords’ will need to sell their properties before next April or be hit with new taxes.

accidental landlord taxes

More than half a million ‘accidental landlords’ will need to sell their properties before next April or be hit with new taxes, it has been reported.

An accidental landlord is someone who didn’t buy a house or flat intending to rent it out but due their personal circumstances has ended up doing so. For example, they could have inherited the property from a family member or moved in with a partner and decided to keep their own property in the short term. Or struggled to sell their home before buying their new home.

However, earlier this month the Government put forward plans to get rid of two types of tax relief for landlords who sell a property that was once their main home – and these changes are due to come into force next April, reports the Daily Mail.

Find out more about becoming an accidental landlord in our guide.

What are the changes in taxes for accidental landlords?

The first relates to principle private residence relief, a rule that means the proceeds from the sale of your main home are exempt from capital gains tax.

As it stands, you can move out of the property 18 months prior to selling it and still be exempt, however under the Government’s new plans this will be slashed to 9 months.

The second change relates to lettings relief. Under current rules, when a landlord sells their former home after renting it out, they’re allowed to shelter £40,000 of their gain from capital gains tax. While for couples this can be up to £80,000, reports the Daily Mail.

However, under the new rules, announced in last Autumn’s Budget, from next April only landlords who live in the property with their tenants will qualify.

What will the impact be?

Experts believe there could be an exodus of accidental landlords rushing to sell their properties before April. This increase in supply could even cause house prices in some areas to fall.

However, the relatively short period of time before the new rules are introduced means some accidental landlords may face barriers to selling up, for example they may be tied into a fixed mortgage deal and be liable to pay hefty exit fees if they sell early.

The bigger picture

These new rules add to the long list of measures introduced by the Government over the past few years that have made owning buy-to-let properties much less attractive and have – quite rightly – tried to make buying a home easier for first time buyers than property investors.

Other changes have included the fact buy-to-let investors now have to pay an additional 3% stamp duty on property purchases, while several tax incentives have been removed.

The Times reported earlier this month that a survey of nearly 250 property professionals and investors published by the accountant RSM found that half of them thought that tax restrictions introduced over the past few years had affected their investment decisions and were ‘a barrier’ to further investment. 

And first time buyers seem to be taking advantage of the reduced competition. Statistics from the Bank of England in March this year show that 21.2% of lending for home purchases went to first time buyers in the fourth quarter (Q4) of 2018, compared to 12.5% for buy-to-let landlords, while the National Association of Estate Agents reports that sales to first time buyers are increasing.

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