In April 2020, some important changes to the tax regime for gains made from the sale of residential property will come into effect. Here is a short summary of how they will affect the way you report and pay capital gains tax

Capital gains tax: currently

Current HMRC rules state, capital gains tax made by individuals should be reported through self-assessment. This means, for example, if you sell a property between 6 April 2019 and 5 April 2020 you must declare it on your tax return and pay any owing tax before 31 January 2021. However, from 2020/21 new rules will apply, which outline that tax payable on certain types of gain will be due up to 21 months sooner. 

The rule change

From 6 April 2020, CGT incurred following the sale of a residential property will have to be paid within 30 days of the completion date. Failure to comply with these changes will result in HMRC imposing interest and potential fines. This new deadline applies even where no money has been exchanged – e.g. when a property is transferred into trust or gifted to a family member.

Keep up to date

HMRC recently released a report that showed those who are likely to be affected by the capital gains tax changes, are not properly aware of the new rules. HMRC are now taking steps to ensure that taxpayers are made aware of these changes. Customers who will face the greatest risk are those dealing with a ‘one-off’ property transaction who may have had little, or no, exposure to CGT.  “Multiple disposal’ customers, on the other hand, are more likely to have a better understanding and deeper knowledge of capital gains tax on property. They are also more likely to seek advice from a professional. 

Tighter deadlines

From 6 April 2020, tax is payable for gains made from the sale of residential property both in the UK and overseas. And, capital gains tax on property following the sale will have to be paid within 30 days of the completion date. You will need to submit a provisional calculation of the gain and pay the estimated tax due. It is still expected that you declare the capital gains on your self-assessment tax returns by the usual self-assessment deadline. You are also expected to pay any CGT due over and above your provisional (estimated) payment.

If you are not in the self-assessment system, you still need to abide by the 30-day declaration and payment rules. However, you do not need to register for this sole purpose. You are permitted to review your provisional calculation and pay any differences after the tax year you made a capital gains tax. 

Estimating capital gains tax

In order to calculate your provisional CGT bill you’ll need to estimate your yearly taxable income to determine how much capital gains tax is payable at 18% and how much at 28%.

Some advice: By bringing forward capital losses from earlier years and those made in the same year as the gain you will be able to reduce the gain liable for tax (up until when you make your estimated calculation). 

It’s also worth noting that if you intend to sell assets which will make a loss, for example, shares, it is beneficial to make the transaction before you make a gain reportable under the 30-day rule. This allows you to take the loss into consideration when calculating your provisional payment.

No amendments

The above information is important because once your provisional calculation has been submitted and the tax has been paid, you are unable to reduce it. So if for example, you made a capital loss later in the year, you wouldn’t be able to claim the tax back until you submit your self-assessment return or year-end review. HMRC also intend to distribute penalties for errors and anyone who does not meet the 30-day deadline for reporting a gain and paying the tax.

In discussion

The new ruling on capital gains tax coincides with the changes to Private Residence Relief (PRR). Although still under consultation it is likely that 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. This is down from 18 months (and 36 in 2014).

This means there will be more taxpayers liable for CGT and so subject to the new 30-day changes. To reiterate, if you make a capital gain from the sale of a residential property large enough to incur tax liability, you are expected to submit and pay the estimated tax calculation to HMRC within 30 days of completion. 

Call Thomas Nock Martin today

Thomas Nock Martin is a leading chartered accountants in the West Midlands, so if you need advice about selling your property, speak to a capital gains tax advisor today on 01384 261300 or visit our website for more information. We want to ensure that you pay the right amount of tax – not a penny more than you legally have to.

If you have found this blog helpful, you may wish to read our previous blog on Employment Allowance