A final reminder this week that major changes to the way that Capital Gains Tax (“CGT”) from the sale of residential properties is collected are coming into force from 6th April 2020. This coincides with a number of other changes which could increase the amount of tax due on residential property sales.
30 Day Reporting and Payment
From 6 April 2020, disposals of UK residential property must be reported and any tax paid within 30 days of the completion date. This is a major shift from the current payment date of 31 January following the end of the tax year of disposal.
The disposal must be reported on a ‘residential property return’ and the tax paid within 30 days. Where you sell a property in which you have lived as your main residence and Private Residence Relief (“PRR”) reduces the gain to nil, or the disposal is a transfer between spouses or civil partners, no return will be required but the rules on these reliefs will also change from 6 April 2020.
HMRC have confirmed that a £100 fixed penalty will apply where the filing deadline is missed, with additional penalties accruing if the failure continues past 3 months.
It is also worth noting that taxpayers who already complete self assessment tax returns will also need to include the details again on their year end tax return, doubling the reporting requirements for some taxpayers.
Loss of Exemption
From 6 April 2020 the government will further reduce the deemed occupation period allowable under PRR and remove Lettings Relief except in very limited circumstances. These measures could considerably increase the amount of CGT an individual will pay following the sale of a property which was previously used as their main residence.
Generally any gain realised on selling your home is exempt from CGT. The exemption applies to the period you are living in the property and also the final 18 months of ownership if you move out before you sell. However, from 6 April 2020 the final period exemption will reduce to just 9 months.
Perhaps more importantly, a further relief known as Lettings Relief is to be effectively abolished from 6 April 2020. In future, it will only apply where the owner and tenant live in the same property in shared occupancy. This is a valuable relief for people who let out their former main residence which can reduce the gain on sale by up to £40,000 for each owner.
The withdrawal and restriction of these reliefs could result in individuals paying over £12,000 more in CGT if a property is sold after 5th April 2020. As relief is available per individual, married couples could pay double this amount after 5th April 2020.
There is still a very small window of opportunity to sell a property under the current rules. In some cases the tax charge on a sale on 6th April will be significantly higher than on a sale just one day earlier. If sales are currently in progress this is an important point to bear in mind.
If you’d like more information about our tax planning services, get in touch
