This is the second article explaining the changes to Capital Gains Taxes on the sale of residential property that take effect on 6 April 2020.
These changes will not affect the tax position of property owners who occupy the property as their main residence throughout the period of ownership but do have a potentially significant impact on those who have at some time rented the property out to tenants.
Part 1 explained the changes to lettings relief and the calculation of the capital gain when the property had been both let to tenants and used as a private dwelling during the period of ownership. The changes will in all likelihood increase the capital gains tax payable by halving the final deemed occupation period and practically abolishing lettings relief. You can read part 1 in full by clicking here.
Part 2 focuses on the changes in the requirements to disclose gains made and to settle the tax payable.
From 6 April 2020 anyone selling residential property on which there is a chargeable gain must make a return to HMRC within 30 days of the sale completion date and pay the tax due.
This contrasts with the current situation where the disclosure and payment of tax occurs between 10 and 22 months after the sale by means of the Self Assessment or Corporation Tax return.
The change, which is estimated to bring a one-off cash flow yield to the government of between £5bn and £8bn, brings the requirements for UK residents into line with those for non-UK residents who have had to comply with the 30-day reporting rules since 6 April 2019.
Capital gains are currently considered in the round so that gains and losses are aggregated and tax is payable where there is an overall gain. With the separation of property gains in the manner described it is easily possible that a substantial amount of tax will be payable only for it to have to be refunded at a later date. This would be the case where a property gain is made and settled only for this to be outweighed by a loss on other assets. The negative cashflow impact on taxpayers may prove to be a significant issue.
The reported experience with non resident property sales over the past year has been that the 30 day reporting requirement has not been universally understood or followed by those undertaking conveyancing transactions. Taxpayers disposing of chargeable residential property need to be aware of these requirements and ensure that their agents are acting in full compliance with the new law. Failure to observe the 30 day time period could result in significant penalty and interest charges from HMRC.
If you require any assistance or further explanation of these issues as they affect you please feel free to contact us.