As we have previously highlighted in our blog, there are a number of changes being made to the way that Capital Gains Tax (CGT) must be reported and paid following the sale of a second property.
For more details read Countdown to new Capital Gains Tax Rules and 2020 Letting Relief Changes – What You Need to Know.
At present CGT is payable by 31 January following the tax year of the disposal or sale, providing anything from a 22 month to a nine month pay window. However, from 6 April 2020 individuals, trustees and personal representatives selling or making gifts of residential property will be expected to make a disclosure of the disposal to HMRC within just 30 days. This will be done by submitting a ‘residential property return’ with interest and penalties being charged if the 30-day deadline is missed.
At the same time, a payment on account of the estimated CGT due will also need to be paid. At the time of completing the return it may be unclear at what rate CGT will apply – it is 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 has been over-estimated, a repayment can be claimed. Likewise, any shortfall will need to be made should you discover that your ‘reasonable estimate’ was understated.
There are exceptions where the new rules will not apply. 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.
If you are thinking of selling a residential property after April 2020, keeping accurate, up-to-date paperwork will be even more important with such a narrow window to prepare and calculate CGT. We would also recommend highlighting any plans you may have to your solicitor as well as ourselves, as your accountant, to ensure everyone involved is as prepared as possible and that payment and return deadlines are met.
If you have any specific queries about what these changes mean for your future plans then please contact us and we shall be happy to assist and advise you.