Letting agencies can help landlords with Capital Gains Tax advice

Letting agencies will have an important role in helping landlords to navigate upcoming Capital Gains Tax (CGT) changes, according to PayProp.

The lettings payment automation provider says that, notwithstanding the coronavirus pandemic, agencies must continue to focus on compliance, adding that they can help landlords by raising awareness, offering advice and referring clients to tax experts.

What are the Capital Gains Tax changes?

From April 6, anyone who sells a property on which CGT is payable will be required to pay an estimate of the tax within 30 days of the sale completing – a huge reduction from the existing grace period of between 10 and 22 months.

From the same date, lettings relief – which allows landlords to claim tax relief when letting a property in which they used to live – will only apply for any period in which the owner has occupied the property at the same time as tenants.

The final exemption of principal private residence relief – which is provided to landlords selling a property they have previously used as their main residence – will also be reduced from 18 months to nine months.

“These significant and complex CGT changes are set to affect many landlords who are looking to sell properties in the near future,” says Neil Cobbold, Chief Sales Officer at PayProp.

“Despite this, they have arguably gone under the radar, receiving less coverage than other industry issues such as stamp duty changes, the removal of Section 21, the Tenant Fees Act and the Homes (Fitness for Human Habitation) Act.”

Letting agencies will play an important role

Landlords selling properties from April 6 will have many new requirements to consider. The shorter time to pay CGT could impact their cashflow and require increased planning.

“Over the coming weeks, it will be important for letting agencies to ensure their landlords are aware of these changes and advise them where appropriate,” says Cobbold.

“Most landlords selling properties after April 6 will need to seek expert tax advice when paying their CGT bill.”

“It could therefore be beneficial for agencies to have a partnership with a professional tax expert in place, so that landlords looking for advice can be referred to a trusted source quickly and efficiently,” he says.

A critical time of change for landlords

The CGT reforms coincide with another crucial tax change affecting landlords. From April, the final stage of Section 24 – the removal of buy-to-let mortgage interest tax relief – will commence.

This means that landlords will only be able claim a tax credit on buy-to-let mortgage interest at the basic rate of income tax, currently 20%.

“Agencies need to make sure they are on hand to guide their clients through this busy and potentially costly time, while also offering them value for money and a first-class personal service. This is an opportunity for agents to demonstrate their value to landlords who may be looking to cut costs or reduce activity,” says Cobbold.

“While these tax changes will require some adjustment, due to the strength and growth of the PRS, there will still be plenty of opportunities for the best letting agencies to take on more business and thrive in 2020,” he concludes.