Landlords face lettings relief blow

5th December 2018

Residential landlords have had another tough year in the face of tax changes to rental income and, as 2018 draws to a close, they face the prospect of lettings relief following suit in the near future. 

The relief currently reduces the amount of capital gains tax owed when a home is sold, on the condition it was the owner’s main residence and part of the property was rented out to a lodger. 

The final 18 months of home ownership qualify for lettings relief and is therefore exempt from capital gains tax in 2018/19. That remains the case going into 2019/20.  

But from April 2020 onwards, lettings relief will be limited to properties where a homeowner is in shared occupancy with the tenant. 

Chancellor Philip Hammond also confirmed in Budget 2018  his plan to halve the final exemption period from 18 months to nine months from April 2020. 

The only saving grace is that residential landlords have just over a year before these changes come into force. 

How does lettings relief work in 2018/19?

When you sell your home, you may have to pay capital gains tax on the profit if you have rented it out. How much your liability is depends on how long you lived in the house. 

Tax is paid on the chargeable gain, which is the profit you made between purchase and sale, minus any private residence relief you may qualify for. 

Private residence relief is intended to keep your main residence free from capital gains tax when the time comes to sell. 

As things stand, no capital gains is owed for the years you resided in the property. An extra 18 months that you owned the house are also exempt, regardless of you living there at the time.  

How will lettings relief work in 2020/21?

From 6 April 2020, you will only be able to stay out of the capital gains tax net if you are in shared occupancy with a tenant. 

What’s more, you will only be able to claim nine months of lettings relief – instead of 18 months – which could drastically alter the amount of tax you pay if you sell your home after April 2020. 

This could catch out many homeowners, such as those who have relocated for work or divorced from their spouse or civil partner.

Therefore, if you’re not in shared occupancy with a lodger, it may make sense to enter into such an agreement before April 2020 or sell your home before these changes take effect. 

Get in touch

We’re happy to talk you through changes to lettings relief in more detail. Contact us on 0117 973 3377 or email us at to find out more.