Capital Gains Tax Changes to Residential Property as explained by Neil Groom.
From April 2020, taxpayers disposing of UK residential property will need to make a capital gains tax (CGT) payment and file a return within 30 days of completion. The new return will not be required where there is no CGT due (e.g. where the gain is fully covered by reliefs, or where the disposal is made at a loss), but will be required in all other cases.
The current self-assessment system can provide up to 21 months in which to file a return and pay any tax due after a sale. Therefore, these changes will see CGT becoming payable much sooner than before, and will also significantly cut the time available to carry out the necessary calculations. There is also the danger of HMRC applying penalties and interest where returns are filed late.
Possible problems / pitfalls
These changes could result in a number of problems:
30 days may be insufficient time to gather the information and carry out calculations where the ownership history of the property is complex, or where valuations or apportionments are required.
Only capital losses made before the completion date of the disposal can be considered when calculating the CGT due. If a loss is made later in the tax year, a claim for refund of CGT paid cannot be made until the self-assessment tax return is submitted.
It is a common misconception that gifts of property are not subject to CGT. At present, this can often be picked up before a self-assessment tax return is due, but the new regime will likely see penalties and interest being applied in these cases.
The new reporting requirements coincide with other planned changes to residential property CGT reliefs if the property has been the taxpayer’s only or main residence at any time during ownership:
Currently, the last 18 months of ownership are eligible for Private Residence Relief. This period is being cut to 9 months from April 2020.
Up to £40,000 of Lettings Relief is available if the property has been let. From April 2020, the relief will only be available if the owner is in ‘joint occupation’ with the tenant.
If you are considering the disposal of residential property within the next couple of years, we recommend that you let us know as soon as you can – perhaps at the point that you begin marketing the property, or ideally even sooner. This will help in a number of ways:
We can advise you if (and how) these new rules will affect you, and any potential impact of accelerating or delaying a sale.
It will give us more time to carry out the CGT calculations, which will be particularly important if a new return is needed.
We can provide you with a projection of any CGT payable before the sale, to help you plan the likely level of post-tax proceeds available.
We can consider any other planning points to mitigate any CGT due.
Together with existing changes to income tax relief on mortgage interest, and the higher rates of stamp duty, it is clear that the government is continuing to target residential landlords for additional tax. If you have any queries on the new or existing rules, or would like to discuss your tax affairs more generally, please email firstname.lastname@example.org or call the office on 01603 666132