To most people, it might appear that there have been few changes to the Capital Gains Tax (CGT) regime over the past few years. However, there have already been a whole host that apply to CGT on property disposals. In April 2020, some more important changes come into effect. Here is a short summary – to find out more about how these may affect you, please contact a Wealth Planner.
The rule change
From 6 April 2020, CGT incurred following the disposal of a residential property will have to be paid within 30 days of the completion date. Failure to pay on time will result in HMRC imposing interest and potential penalties. This new deadline applies even where no money has changed hands – e.g. when a property is transferred into trust or gifted to a family member.
At present, a taxpayer would report any capital gains on their self-assessment tax return, with the resulting tax being payable by 31 January following the year in which the gain was made. So, for example, whilst a main residence is usually CGT-exempt, if a second property had been sold on 1 May 2018, this would be reportable on a 2018/19 tax return with the tax being payable by 31 January 2020. This gives someone a period of 20 months longer to pay the tax than they will have under the new rules.
HMRC are taking steps to ensure that taxpayers are made aware of these changes, having conducted recent research indicating that their customers have very differing levels of awareness and experience when it comes to CGT. At greatest risk are customers dealing with a ‘one-off’ property transaction who may have had little, or no, previous CGT experience. “Multiple disposal’ customers, on the other hand, are more likely to have greater knowledge and experience and/or to use an agent who can communicate any relevant rule changes to them.
In the pipeline
Other proposed changes are due to be implemented from April 2020 but are still under consultation (with the results due later in the summer). These are potentially significant and could affect decisions about selling properties or making them available to let.
1. Changes to Private Residence Relief (PRR)
From April 2020, this relief will apply to the full period a taxpayer lived in the property as their principal residence plus the final 9 months of occupancy (unless they can claim special circumstances, such as a disability or having to move into care). This is down from 18 months (and 36 in 2014)
2. Changes to Letting Relief
This is currently the lower of:
- The amount of gain attributable to the letting proportion of the property
- The amount of PRR that can be claimed
From April 2020, this relief will only be available to people who were sharing occupancy of a property, as their main home, with a tenant throughout the period of letting. This will affect most people who rent out a property that they’ve previously lived in, as it will make more of the capital gain on their property assessable to CGT.