In his statement, Mr Osborne announced two big changes for capital gains tax (CGT) with the first affecting thousands of UK landlords.
Under the current rules, a landlord with more than one property is exempt from CGT for three years on profits made on a property when it is sold; so long as they have lived in it at some point as their main home.
Private Residence Relief and CGT for landlords
This is known as Private Residence Relief, or PRR, and the rules around this can be complicated; for those who don’t qualify for full relief, they can claim partial tax relief on CGT
But again the rules can be complicated about claiming partial tax relief because they define how long the landlord must have lived in the property for and defines the ‘quality’ of their occupation before partial relief can be claimed.
For any landlord wishing to exploit the current rules then the time to act is now and they should take professional advice.
Landlords with an investment property who may be eligible for CGT exemption under PRR then they should sell their property before the 5 April 2014 deadline to claim the full 36 months exemption, even if they did not live in the property.
CGT loophole closed to landlords
However, landlords who live abroad were handed a big shock when the Chancellor announced that rather than being exempt from CGT they will now be handed a tax bill on any profits made from the sale of a property.
This move has effectively closed a loophole which saw foreign landlords and property investors being treated more favourably than British landlords.
It has not gone unnoticed that one of the major reasons for the huge boom in prices for London properties is being fuelled by foreign investors; many of whom are being attracted to investing because they are exempt from CGT.
The new rule for foreign investors, and British landlords living overseas, will come into force from April 2015 and then will only apply to any future increase in a property’s value and not in its previous growth. This means it would be wise to have a valuation done at this time.
British expatriates will be particularly hit hard since they frequently invest their foreign earnings into UK property with a view to returning home at some point to enjoy their investments.
Experts predict that this loophole closure will generate more than £125 million year by 2018.
However, one prediction from tax experts that the Chancellor would reduce the tax relief enjoyed by buy-to-let investors did not happen despite growing criticism that BTL investors are effectively enjoying £5 billion a year in subsidies from the British government.
