CGT Changes

CGT Changes on Residential Property

Tax changes on residential property disposals

From 6 April 2020 there is a major change in the reporting and payment of Capital Gains Tax (CGT) on residential property disposals. From that date, you must report the disposal of the property within 30 days of completion of the disposal and pay CGT on account to HMRCThis will be a significant acceleration of the payment date as CGT is currently payable with income tax on 31 January following the end of the tax year.

Consider the difference in the following disposals:

  • where completion of a property disposal takes place on 1 April 2020, CGT will be due 31 January 2021.
  • If completion were delayed to 1 May 2020, CGT would need to be paid on 31 May 2020.

Make sure you understand the CGT changes. Reporting and payment of Capital Gains Tax (CGT) on residential property disposals must be correct or it may be a costly mistake.

Note that the new 30 day rule will not apply where no tax is payable such as the disposal of your private residence.

Another reason to sell property before 6 April 2020

If the draft legislation issued for consultation last year is enacted in the next Finance Act there will be important changes to private residence relief for disposals after 5 April 2020.

Firstly, the exemption for the final period of ownership will be reduced from 18 months to 9 months. This applies where a former main residence is disposed of and is intended to give relief where the owner has moved to another main residence until the former residence is sold i.e. “bridging”. For many years this additional allowance was 36 months. This led to a tax planning strategy referred to as “second home flipping” which HMRC are seeking to counteract.

The second change will be the abolition of letting relief. An exception will be where the taxpayer lives with the tenant. This generous relief currently provides an exemption of up to £40,000 per owner where the former main residence is rented out.

As a result of these two proposed changes you might want to consider disposing of a property before 6 April 2020 if you were planning to take advantage of these CGT reliefs.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transactionYou should consult your own tax, legal and accounting advisors before engaging in any transaction or contact us on 02871 370886 if you require assistance.

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