New legislation will take effect from 6 April 2020 relating to the filing and payment of Capital Gains Tax (CGT) on disposals of UK residential property. If you are considering selling an investment property or second home, you need to consult a tax specialist as soon as possible to ensure that you meet the tight deadlines.
Any tax arising will now need to be paid and the details reported to HMRC within 30 days of the completion of disposal.
Non-UK resident individuals, who currently report property disposals within 30 days, can no longer defer payment to the 31 January following the end of the tax year of the chargeable event. They must now pay any tax owed within 30-days of completion of any disposal of UK property (including commercial property) or shares in ‘UK property-rich companies’.
Who does this affect?
This will affect individuals who make capital gains on residential property after 6 April 2020, unless the gain is wholly covered by principle private residence relief (PPRR) - for example where you have been living in the property as your main residence since purchase. Additionally, the following transactions will not fall under the scope of the new rules:
- Where a legally binding contract for the sale was made before 6 April 2020.
- If the disposal was made to a spouse or civil partner (nil gain, nil loss treatment).
- When the gains (including any other chargeable residential property gains in the same tax year) are within your tax free allowance (Annual Exempt Amount).
- If, after deducting all allowable costs, you made a loss on the disposal.
- If the property is situated outside the UK.
In any other circumstances, the disposal must be reported and the tax paid to HMRC within 30 days of completion. This includes disposals of:
- A property that you’ve not used as your main home.
- A holiday home.
- A property which you let out for people to live in.
- A property that you’ve inherited and have not used as your main home.
If you miss the new deadline, late filing, late payment penalties and late payment interest will apply.
How will it be reported?
To enable individuals to report and pay their CGT liability, HMRC are developing a new digital service which will be available from April 2020.
For many individuals this will mean that if no other Self-Assessment criteria apply, they will no longer need to register for Self-Assessment to report a ‘one-off’ property disposal.
If you are already within Self-Assessment, the gain will still need to be included on your Self-Assessment tax return as well.
Last chance to make use of PPR relief and lettings relief
In addition to the new reporting, the following changes to PPR and lettings relief are to be introduced from 6 April 2020:
- The final period of exemption will be reduced from 18 months to 9 months.
- The conditions for letting relief will be amended so that relief will only be available where there is shared occupancy (i.e. the owner and the tenant both live in the residence).
- Where an interest in a property is transferred to a spouse or civil partner, the legislation will be changed so the transferee always inherits the ownership period and property usage of the transferor. This is the case even if it was not the couple’s only or main residence at the time of the transfer.
If you currently let out a property that was your former main residence, please contact your tax specialist urgently to discuss whether it would be possible to make use of these valuable reliefs before they are reduced. Alternatively, for further advice, feel free to get in touch with David Portman at firstname.lastname@example.org or Phil Moss at email@example.com.