Are you up to date on the Changes to Capital Gains Tax reporting on Residential Properties?

In Advice and tips, News by Caroline

The government has recently announced changes to Capital Gains Tax reporting for residential properties, but what are the key things you need to know? Richard Gold of Barnett Ravenscroft Accountants outlines the changes.

What is Capital Gains Tax (CGT)?

Capital Gains Tax is the tax you pay on any profit resulting from the sale of an asset, that has increased in value, such as a property. Currently, any Capital Gains Tax due from the sale of a residential property is declared via a self-assessment tax return. This means that the tax is due for payment by 31st January following the tax year within which the property was sold.

So what’s changed?

From 6th April 2020, a Capital Gains Tax return will need to be submitted to HMRC within 30 days of completion of the property sale. Payment of the CGT liability will also need to be paid within the same timeframe. Failure to pay on time could result in penalties and interest being charged by HMRC.

This new policy is the same as the requirements for non-residential property, which was introduced in 2015.

If you’re disposing of a property before in the 2019/2020 tax year before 6th April 2020, you will still have until 31st January 2021 to pay capital gains tax.

As an example, if you complete a property sale on 15th June 2020, the reporting and the payment would need to be completed by 15th July 2020. This means that the capital gains tax payment will need to be made a lot earlier than for any property sale completed in the 2019/2020 tax year.

Who is affected?

This applies to anyone selling rental properties, second homes and other gains which are not covered by the annual exemption or unused losses. You will be required to calculate (or reasonably estimate) any gains within the 30 day window and so it is advisable to consult with the experts at Barnett Ravenscroft.

Reporting is not necessary if the property you are selling is your main or primary home. In this case, the entire gain is covered by Private Residence Relief (PRR). It also does not apply if no money is changing hands – e.g. family gift or transfer into a trust.

Changes for landlords selling rental property

The rules will be changing for landlords disposing of a rental property that was once their home. From April 2020 claims for capital gains tax relief will reduce from 18 months to 9 months. This works by calculating capital gains tax on the number of years you have owned the property, minus those you lived in it and the relief. E.g.

  • You owned the house for 10 years
  • Lived in the house for 2 years
  • Capital gains tax would be calculated based on 8 years, minus 18 months (or 9 months based on the new rules)

There will also be changes to lettings relief. Currently, Landlords who sell their former home can have up to £40,000 per person (e.g. married couple) of their gains exempt from capital gains tax. However, the latest changes to capital gain tax rules will mean that this exemption only applies to landlords who still live in the property with their tenants.

Getting help with Capital Gains Tax

As you can see there is a lot of complexity around capital gains tax. Get in touch with the friendly experts at Barnett Ravenscroft to ensure you know your tax liabilities and requirements.

If you think you need any advice about any of your tax matters, then please get in touch.