The deadline for paying capital gains tax (‘CGT’) following the disposal of UK residential property will be changing from 6 April 2020. The current timeframe is up to 21 months; it will be reducing to 30 days.
In this (and previous) tax years, UK resident individuals will report chargeable gains as part of their self-assessment tax return. A taxpayer could, under the present regime, realise a gain from the disposal of a residential property on 6 April 2018 and then not have to pay any resulting CGT until 31 January 2020 (the deadline for individuals submitting their tax return online in the 2018/2019 tax year).
However, from 6 April 2020, individuals (and trustees) must report and pay any CGT arising from the sale of UK residential property within 30 days of completion. This is the same as the existing rules for non-UK resident individuals, which have been in place since 2015. HMRC will call any such CGT payment a ‘payment on account’. Self-assessment tax returns will also still need to report the capital gain. Depending on what other capital gains/losses are realised in the tax year, more tax or a refund may be due.
Who will be affected?
The changes are most likely to affect those disposing of investment properties or second homes. Those selling their main residence, such as the family home, are unlikely to be affected, as any capital gains are normally exempt from CGT by virtue of principal private residence relief (‘PPR’), although trustees should consider their position carefully as the application of PPR is more complex in trust situations.
Gifts or sales at less than market value constitute disposals for CGT purposes, which could present difficulties if, for example, an individual gifts a residential property, but has insufficient funds to settle the CGT liability within the new 30 day timeframe.
Reporting capital gains
A taxable gain arising from the disposal of UK residential property will be reportable by way of HMRC’s existing CGT ‘payment on account’ online system. Capital losses that have already been incurred in the same tax year can be taken into account. However, it will not be possible to amend the calculation if subsequent capital losses are incurred, until the individual submits their tax return.
What should you do?
Individuals and trustees planning to dispose of UK residential property may wish to do so before 6 April 2020 to take advantage of the longer timeframes. Otherwise, individuals and trustees who intend to dispose of UK residential property after 6 April 2020 should take advice regarding the CGT that may be payable, together with the availability of any losses and reliefs. Where an individual or trustees are likely to dispose of UK residential property and any other assets in the same tax year, they may wish to consider the order in which they do so.
For further information or advice please contact Claude Alleston.
This article is for general purpose and guidance only and does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. No part of this article may be used, reproduced, stored or transmitted in any form, or by any means without the prior permission of Brecher LLP.