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Countdown to new Capital Gains Tax Rules

Individuals that own additional and buy-to-let properties have been under the HMRC microscope for a number of years now. And this focus by HMRC is set to continue.

Following the reduction in relief for mortgage interest, plus increased rates of Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) on additional properties, HMRC are now accelerating the rate on which potential CGT liabilities are payable from 6 April 2020.  The information below will provide you with the highlights of the CGT changes.  We also recommend you read our blog in relation to stricter conditions for Letting Relief to give you a complete picture of the new regualtions.

At present CGT is payable by 31 January following the tax year of the disposal or sale of the property. However, from the start of the 2020/21 tax year individuals, trustees and personal representatives selling or  taking gifts of residential property will be expected to make a  disclosure of the disposal to HMRC within 30 days. This will be done by submitting a “residential property return”. At the same time, a payment on account of the estimated CGT due will also need to be paid to HMRC.

At the time of completing the return and payment to HMRC it may be unclear at what rate CGT will apply, currently set at 18% for basic rate tax payers and 28% for higher and additional rate taxpayers. HMRC are therefore requesting that reasonable estimates are made during the filing process. If, on finalisation of an individual’s tax affairs for the year, the payment on account has been over-estimated, a repayment can be claimed. Likewise, any shortfall will need to be corrected should you discover that your ‘reasonable estimate’ was understated.

When will the new rules not apply?

There are exceptions where the new rules will not apply and CGT is not chargeable. These would include cases

  • where a private residence is disposed of
  • where the gain is below the annual exemption (currently £12,000)
  • when a transfer is made between husband and wife
  • when the gain will be covered by unused capital losses.

It won’t be long until the new rules come into place and if you are thinking of selling a residential property after April 2020 you are going to have to be even more organised than before.

We would recommend that research is carried out in advance of any sale affected by the new rules to ensure that the disclosure of disposals is as accurate and timely as possible. Also, highlight in advance any intention of disposals of residential property to the solicitor you use to deal with the transaction as well as ourselves, as your accountant, to ensure payment and return deadlines are met.

If you are thinking of disposing of a second home or let property and want to avoid having to complete the return and the reduced CGT payment timescales you may wish to consider doing so before 5 April 2020.

If you have any specific queries about what these changes mean for your future plans then please contact GWA and we shall be happy to assist and advise you.

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