Accountants based in Nottingham, UK

Capital gains on property

Disposing of property? There are important tax changes on the horizon. The date to keep in view is 6 April 2020. New capital gains tax (CGT) rules apply if you dispose of a property on or after this date.

Broadly speaking, private residence relief (PRR) means there is usually no CGT to pay on the sale or disposal of your main or only residence. To 'better focus' PRR on owner-occupiers, Budget 2018 announced changes to the final period exemption and lettings relief. You may want to consider your affairs now in the light of these changes.

Final period exemption

With the final period exemption, you are not usually liable to CGT for the last 18 months in which you own a property, even if you don't actually live there. This was intended to provide protection for someone moving to a new main residence when there was difficulty selling the original home. But from April, the final period is cut to nine months. The change could create CGT consequences for significantly higher numbers of property transactions. If buying a new property before selling the old, it will be important to try to sell within nine months to avoid a possible CGT bill.

There is an exception for those in, or moving into, care home accommodation, or those with a disability. Here there is a 36-month period, and this does not change.

Lettings relief

At present, lettings relief gives up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was the former main residence at some point in their period of ownership. But under the anticipated new regime, lettings relief will only be available where you jointly share occupation with a tenant, which is likely considerably to reduce its scope.

We have only been able to provide an overview of the new rules here, and complexities can arise, for example with periods of absence from a main residence, or with ownership of more than one property. Please do talk with us for advice on your individual circumstances.

Paying the tax

From 6 April 2020, there is also major change to the deadlines for paying CGT when disposing of a residential property. This may apply when a second home, an inherited property, or a rental property, is sold or otherwise disposed of. Individuals, trustees, and personal representatives should all be aware of the forthcoming change.

In future, there is a 30-day window after the completion of the property disposal in which to file a return, calculate and make payment on account of the CGT bill. This changes the current procedure, with payment made as part of the self assessment cycle, and CGT payable by 31 January of the tax year following the year of disposal. If no payment is due, reporting will not be required. This would be the case if, for example, PRR is available in full.

The change parallels current obligations of non-UK residents. Since 6 April 2019, non-resident CGT has applied to direct and indirect disposals of UK land or property, whether commercial or residential, with non-resident companies being chargeable to Corporation Tax on gains. There is a 30-day reporting requirement, even if there is no tax to pay. Where tax is due, it must be paid within 30 days of completion. The charge to CGT on ATED-related gains has been removed.

Tax and property are complicated, and it is always prudent to discuss the potential tax implications of any property transaction. For peace of mind, please do not hesitate to contact us.