Selling Residential Property
From 6th April 2020 all UK residents who sell a residential property that gives rise to a capital gains tax (CGT) liability must send a new standalone online return to HMRC.
The tax due must be paid within 30 days of completion of the sale.
So what’s the difference to the current rules?
Currently, taxpayers have until the Self Assessment tax deadline of 31st January after the tax year in which the disposal is made, to complete a tax return and pay CGT.
The new return will need to be done online, requiring taxpayers to have a Government Gateway account to either submit the return themselves or to digitally authorise a tax agent to do it for them.
The current system means that, depending on timing of the sale, CGT is due anything from 10 months to 22 months after the sale or disposal. The new 30-day deadline means you now have much less time to report the gain and also pay the tax.
Points to note
Rather than thinking about an annual compliance process, property owners need to have their records up to date in advance of the sale so that the 30-day deadline can be met and penalty charges avoided.
Make sure that full property details are all readily to hand including the date when the property was acquired, the acquisition cost and details of any improvements made over the period of ownership. In some cases, professional valuations may be needed.
Property owners should contact their tax agent or adviser if they have one, to let them know that a sale is underway now, rather than wait for the annual Self Assessment tax return process.
Calculating the CGT due to HMRC will require the property owner to make a reasonable estimate of the tax payable; this is because the rate of CGT will depend on the taxpayer’s income in the whole tax year.
What If I lived in the property?
Homeowners who have lived in the property for the whole period of their ownership are usually covered by CGT private residence relief which means no taxable gain arises on sale. If this applies to you, nothing changes because there is no gain to report.
If you have let your property however, or moved out for long periods before selling, the tax rules can be complex. New rules were announced at Budget 2018 for lettings relief and a reduction in the final qualifying exempt period of ownership from 18 months to nine months from April 2020.
What you should do next
If you are a residential property owner, with likely taxable capital gains and are going through the process of selling, you should keep a close eye on future updates. We are expecting further updates on how the system will work by 6th April 2020.
You can keep up to date by following us on social media or checking updates we post on our website. If you are an existing client however, we’ll discuss this with you during our monthly catch up meetings.
If you are not an existing client, you think this applies to you and you need some help with your tax planning, Franks Accountants can help. Give us a call or complete the form below and we’ll be happy to assist.