Capital gains on residential property
Updated: Jan 20, 2021
I’m writing to you as property owners, who are either in process of letting out a property, or are already doing so, to notify you of some upcoming changes to capital gains tax (CGT) on residential property. Now, I believe I’m right in thinking you are not at the stage of selling an element of your portfolio at the moment, however this is something you need to be aware of so you can help me help you stay on the right side of the legislation.
As I’m sure you know, CGT may arise on the sale of residential property, when that property is not the owners main residence. When applicable, CGT is charged on the gain made (minus allowable expenditure), and collected via the annual self-assessment process.
Changes are afoot.
CAPITAL GAINS ON RESIDENTIAL PROPERTY
27th SEPTEMBER 2019
What do I need to know? The short answer
HMRC want to know about a property sale and collect the tax straight away from Apr 2020. If you sell one or more of your properties, please let me know without delay.
What do I need to know? The embellishment
The old saying goes, ‘a bird in the hand is worth two in the bush’, and so it is with tax. The quicker the government can collect the tax due on a transaction, the more valuable that income is. The delay between making a capital gain and paying the CGT due can be as much as 22 months. For example, the CGT arising from a gain made by a UK resident individual on 6 April 2019 will be payable by 31 January 2021.
In 2018, the government proposed that CGT would be payable “on account” within 30 days of the completion date for all UK residential properties disposed of by a UK resident. This change was due to come into effect on 6 April 2019 but it was delayed until 6 April 2020.
The “on account” description of the tax payment is a misnomer as the full amount of CGT will be payable within 30 days, alongside a new online property disposal return. If there is no gain to report or the gain is covered by exemptions or losses, we won’t have to complete a property disposal return. If there is a taxable gain to report, we must calculate the CGT due taking into account the annual exemption for the year and forecast the correct rate of CGT to apply (18% or 28% based on 2019/20 rates).
After the end of the tax year, we complete the self-assessment tax return, including the property gain. Once the full income, gains and losses for the year are calculated, the true amount of CGT will be ascertained and any “on account” payment will be deducted. This could result in a repayment of CGT for the taxpayer.
Any questions just shout.