Disposing of property after 6 April 2020? Be prepared to report and pay the capital gains tax (CGT) within 30 days of completion. There are also key changes to the principal CGT reliefs available when selling residential property.
Broadly speaking, private residence relief (PPR) means there is usually no CGT to pay on the sale or disposal of your main or only residence. However, Budget 2018 announced changes to the reliefs available and a new reporting process for residential property disposals.
Final period exemption
With the final period exemption, you are not usually liable to CGT for the last 18 months in which you own a property, even if you don’t actually live there. This was intended to provide protection for someone moving to a new main residence when there was difficulty selling the original home. But from April 2020, the final period is cut to nine months. The change could create CGT consequences for significantly higher numbers of property transactions. If buying a new home, it will be important to sell your old home within nine months to avoid a possible CGT bill. There is an exception for those in, or moving into, care home accommodation, or those with a disability as the current 36-month period remains.
At present, lettings relief gives up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was the former main residence at some point in their period of ownership. But under the anticipated new regime, lettings relief will only be available where you jointly share occupation with a tenant, which is likely considerably to reduce its scope.
Paying the tax
From 6 April 2020, there is also major change to the deadlines for paying CGT when disposing of a residential property. This may apply when a second home, an inherited property, or a rental property, is sold or otherwise disposed of. Individuals, trustees, and personal representatives should all be aware of the forthcoming change.
At present, any capital gains tax payable on the disposal of residential property is payable through the Self Assessment process with the gain being reported on a Self Assessment Tax Return for the year of disposal. The tax doesn’t require to be paid until 31 January following the end of the tax year of disposal so in theory there could be up to 21 months after the date of disposal (e.g. the CGT payable on a property sold on 10 April 2019 would not require to be reported or paid until 31 January 2021).
From 6 April 2020, there will be a 30-day window after the completion of the property disposal in which to file a ‘UK Land Return’, calculate and make payment on account of the CGT bill. This significantly changes the timeline for reporting and paying the tax due with the onus now likely to be on the conveyancing solicitor to arrange the calculation of the CGT payable and complete the reporting and payment process. If no CGT payment is due, reporting will not be required. This would be the case if, for example, PRR is available in full.
If property is owned jointly or in partnership a UK Land Return will require to be completed for each owner (and the relevant tax paid by each). In addition to the new UK Land Return the property disposal will also require to be reported on the taxpayer’s Self Assessment Tax Return in the normal fashion and any CGT paid taken into account in the final Self Assessment tax calculation.
The change parallels current obligations of non-UK residents. Since 6 April 2019, non-resident CGT has applied to direct and indirect disposals of UK land or property, whether commercial or residential, with non-resident companies being chargeable to Corporation Tax on gains. There is a 30-day reporting requirement for non-UK resident taxpayers, even if there is no tax to pay. Where tax is due, it must be paid within 30 days of completion. The charge to CGT on ATED-related gains has been removed.
Failing to file the UK Land Return within 30 days will result in an initial penalty of £100. If the return is more than 6 months late a penalty equal to the higher of £300 or 5% of the tax due is payable. If more than 12 months late, a further penalty of either £300 or 5% of the tax will again be due. £10 daily penalties may also be levied for up to 90 days (between 3 months and 6 months of filing date), but by concession HMRC has stated that it will not usually charge these. It is clear however that, for larger transactions, the 10% penalty could ultimately be quite significant.
Seller Beware – take action asap in the sale process
As the reporting window is so short it is imperative that property vendors speak to their solicitor and/or their Tax Advisor as soon as possible in the sale process to allow sufficient time for the CGT to be calculated and the UK Land Return submitted within the 30 day reporting window. If you are contemplating the sale of residential property in the near future we would encourage you to speak to your solicitor or to us now so that the information required to deal with a UK Land Return can be collected in advance of the property sale.