Earlier this year, the government announced plans to scrap two types of tax relief for landlords who sell a property that was once their home. Homeowners in these circumstances are often referred to as ‘accidental landlords’, as when they originally acquired the property it was not with the intention of letting it out. They may choose to do so because they are having trouble selling, are relocating or they may have inherited it.

The clock is ticking

The new rules will take effect from 6 April 2020 when the tax relief, known as principal private residence relief, will be reduced from the existing extension of 18 months to nine months. So, when a property that was once a main home is sold, the tax payable is on the amount it goes up in value while it is let out. Currently the owner is allowed to add 18 months to the amount of time they lived at that property; from April next year they will only be able to add nine.

Lettings relief is to be scaled back at the same time, meaning that landlords selling their former home after renting it out will no longer be allowed to shelter £40,000 of the gain from Capital Gains Tax (up to £80,000 for couples). From April next year, only landlords who continue to live in the property will qualify for this benefit.

The Financial Conduct Authority does not regulate some forms of tax advice.

The new rules will take effect from 6 April 2020 when the tax relief, known as principal private residence relief, will be reduced from the existing extension of 18 months to nine months.

The higher-than-average house price growth in top university cities is making it difficult for talented individuals to stay on and work locally after graduation. Research⁴ has shown that in the period 2009 to 2018 house prices in London have risen 76.3%, in Cambridge 73.4% and in Oxford 66.8%. This represents growth 25% higher than the national average.

Long term it is feared that the lack of affordable housing could hinder further economic growth and there is a call for local plans to include homes for key workers and for higher density development.

⁴Bidwells, July 2019

In the UK, flats are commonly owned on a leasehold basis, while houses are normally sold as freehold properties. Many leases are granted on a 99-year basis, while some can run for as long as 999 years.

If you buy a leasehold property, you’ll own the property but not the land it stands on. By contrast, buying a freehold property means that you own both the building and the land it occupies.

The outstanding term of the lease

Once a lease has less than 80 years left, it becomes harder to get a mortgage and it can be expensive to renew the lease for a further term.

The advice is that to avoid potentially having to pay tens of thousands of pounds to renew it, buyers should look for a property with a lease that’s unlikely to drop below the 80-year mark during their ownership.

Purchasing freeholds

Following media coverage of the plight of thousands of people who bought new-build leasehold houses, only to find that their freehold had been sold to investment companies and that they would have to pay tens of thousands of pounds to buy it, or face exorbitant ground rent rises, the government had promised to introduce legislation; however, this has yet to appear. So, if you’re buying a leasehold house, taking legal advice makes sense.

Once a lease has less than 80 years left, it becomes harder to get a mortgage and it can be expensive to renew the lease for a further term.

Ground rents

It’s important to get confirmation of the amount payable each year in ground rent, both now and in the future, as there have been cases where ground rents double every ten years or increase in line with the Retail Prices Index.

Responsibilities under a lease

Leases often contain obligations; leaseholders must get permission before making certain alterations to the property.

With a leasehold flat, you aren’t responsible for maintaining and running the building and communal areas. The freeholder will do this, or alternatively appoint a managing agent to act on their behalf. However, the leaseholders share the cost of this between them by paying a service charge.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.