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Changes to Capital Gains Tax on the sale of residential property

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Thinking of selling your home? Don’t get caught out by the latest changes to Capital Gains Tax from HMRC. In this blog, Carolyn Byrne highlights the key facts and explains who needs to be the most vigilant when it comes to future property sales.

As from 6 April 2020, HM Revenue & Customs will introduce a new reduced deadline for the reporting and payment of Capital Gains Tax (CGT) on the disposal of residential property.

From that date UK taxpayers will have only 30 days from the date of completion of a sale, gift or other disposal to calculate their CGT liability, submit details of the disposal to HMRC and pay their tax liability.  Penalties will be levied for late filed returns and interest will be charged on tax paid late.

This contrasts to the current position where chargeable disposals of residential property are reported on a self-assessment tax return where the due date for submission and payment of CGT is 31 January after the end of the tax year in which the disposal takes place.  Therefore, there could be up to 22 months between the date of disposal and the date for reporting the gain and paying the tax liability.

The type of disposals that will be caught by the new rules will be where the property concerned is a second home, a rental property or an inherited property.

No return will be required for non-chargeable disposals, for example, where the property concerned is the main residence of a taxpayer and Principal Private Residence Relief (PPR) will apply to exempt the disposal from CGT.  Nevertheless, things may not always be straightforward and a report may be required if the relief will not exempt the whole of the property – for example, if the grounds are in excess of the “permitted area”.

Changes also lie ahead for PPR itself.  Currently, the relief covers the actual period of occupation of the property and also the final 18 months of ownership – even if the property is not occupied in that period.  This, therefore, provides relief where a taxpayer moves out of a property before disposing of it.  However, as from April 2018 the period of extended relief will be reduced to nine months.

Due to the short filing deadlines to be introduced, if you are planning on disposing of a property that may result in a CGT charge, then it is advisable to seek tax advice well in advance of any transaction. You also need to ensure that there is no undue delay between the completion of a disposal and the preparation of the return to HMRC. 

Roythornes can provide advice in respect of the CGT consequences of the disposal of residential property, the availability of PPR relief and will also be able to complete and submit the relevant CGT return to HMRC.  Please contact Carolyn Byrne for further information or if you have any queries.