In some cases, the cutback to capital gains tax (CGT) relief could make it worth bringing forward a sale to avoid the extra cost, say accountants.
The increase in value in a rental property is generally liable to CGT at up to 28 per cent. But landlords selling a rental property that has previously been their home have long benefited from a number of reliefs.The period when they lived in the property is tax-free. "Letting relief" reduces taxable gains by up to £40,000. And, currently, there is no capital gains tax for the three-year period before the property is sold. However, for sales after April 5 this "final period exemption" is being halved to 18 months.
The reduction, announced in Chancellor George Osborne's most recent Autumn Statement, is forecast to raise an extra £360 million in tax for the public coffers over the next five years.
"It's very significant," says Tim Norkett, head of private clients at accountants Crowe Clark Whitehill. "There are big profits to be taxed."
Counting the cost
Many landlords in the capital could be sitting on six-figure gains from a property bought a decade ago.
Londoners who have moved in with their partner and rented out their old home are among those who could be hit by a higher tax bill when they sell, says Lucy Brennan, partner at accountants Saffery Champness.
As well as "accidental" landlords like these, the cut in relief will reduce the benefit of "flipping" - where, for example, a buy-to-let investor looking to sell a property they have not lived in previously makes it their home temporarily to qualify for the exemption.
Accountants said that landlords who have been considering selling should calculate the potential increase in tax to see whether it is worth seeking to offload their property by April. Lucy Brennan says the extra tax "could easily be thousands of pounds".
Take, for example, a rental property bought 10 years ago as a home that has increased in value by £200,000.
The halving of the exemption to 18 months means that £30,000 (£200,000 divided by 10 years, multiplied by 18 months) of previously exempt gains could be liable for capital gains tax.
The additional tax could therefore be as much as £8,400 (£30,000 multiplied by 28 per cent).
However, some landlords face lower increases, or even no extra tax, thanks to their other reliefs.
This could be the case for a landlord who lived for a long time in a property they are now renting out, Brennan says.
If, say, the property in our example was the landlord's home for the first seven years, currently, the combination of that tax-free period with the three-year exemption would mean gains for all 10 years of ownership were free of capital gains tax.
After April, with the reduced exemption, eight and half years of gains (seven plus the 18 months) would be accounted for by these reliefs. But the other year and a half of gains (£30,000) would still be covered by the landlord's letting relief.
On the other hand, where a landlord has made big gains on a property they have mostly rented out, they may well be facing a substantial increase to an already significant CGT liability.
Dropping the sale price vs. saving in tax
Experts have suggested that the relief change could trigger a mini rush to sell properties by April, and that after that point, landlords may be more inclined to hang on to properties rather than selling them because of the less-generous CGT rules.
In order to benefit from the existing three-year exemption, the exchange of contracts on the sale must go through before April 6, with completion before April 6 next year.
Given the potentially tight deadline, Norkett warns that prospective sellers should "watch out for buyers dragging their feet and trying to get some 'wriggle room' on price".
Brennan also cautions: "There's no point in taking a £20,000 drop in price to sell a property just to save £5,000 in tax."
For more information on property gains and tax go to hmrc.gov.uk/cgt/ property/index.htm