Change to Capital Gains Tax on disposal of residential property imminent

Residential property owners have certainly had to put up with their share of tax changes in recent years and now there’s another fundamental change on the horizon where disposal of UK residential property is involved.

Whereas currently, Capital Gains Tax is payable by 31 January of the tax year following the year of disposal, from 6 April 2020, a 30-day reporting and payment window will come into effect. This change demonstrates another step in the acceleration of tax payment dates for CGT due on gains arising from UK property.

It is worth knowing more about the current rules and the forthcoming changes.

What are the current rules?

Currently, individuals, trustees and personal representatives realising a taxable capital gain from the sale or other disposal of UK residential property must pay any CGT due by 31 January of the tax year after the disposal.

In effect, this means there could be a period of 22 months between making a capital gain and paying the CGT – any CGT arising from a gain made by a UK resident individual on 6 April 2019 will not be payable until 31 January 2021.

What will change from 6 April 2020?

From 6 April 2020, within 30 days of completion of sale, it will be necessary to submit a provisional calculation of the gain, known as a ‘residential property return’ to HMRC, and pay the CGT which is due. Interest and penalties will be charged if the 30-day deadline is missed.

A return isn’t required where the capital gain is not taxable for example if it is covered by main residence relief.

Taxpayers who are within the self-assessment system will have to report the capital gain on their annual tax return as well as completing the 30-day residential property return.

If tax is overpaid then this will not be repayable until the tax return is submitted so it is important that the calculation is as accurate as possible.

The relevant date of disposal for the 30-day payment window runs from the date of completion rather than the date of exchange.

What are the implications?

This new deadline is a major reduction in the timescale that may apply between selling a residential property and paying the tax.

Problems are likely to occur where the calculation of the capital gain is complicated although the legislation does allow certain estimates and assumptions to be made when calculating the payment on account.

If you are thinking of selling a property which is likely to be affected by this new legislation, consider completing this before 5 April 2020 in order to gain a cash flow advantage.

Post 5 April 2020 you should discuss with your advisor and residential property sales as soon as they are agreed. This will ensure that any CGT due can be correctly calculated and the residential property return completed – all within the new 30-day window.

For more information on Capital Gains Tax matters please contact james.greenhalgh@cowgills.co.uk