The Changes to Capital Gains Tax on Property Disposals

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The Changes to Capital Gains Tax on Property Disposals

Capital Gains Tax (CGT) is changing on 6th April 2020 and it might have a significant impact on the amount of tax you owe HMRC, if you’re affected.

We’ve received the latest Agent Update from HMRC (a rather technical and acronym-filled document they send accountancy firms) and have already devoured the section on CGT.

Here’s the low down.


What’s changing?

From April this year, the government is changing the rules that relate to the payment of CGT on property disposals.

After 6th April, any tax due will need to be reported and paid to HMRC within 30 days of completion. Previously, you had up until the end of January to do so.


How easy will it be to report and pay CGT?

If you’re in the business of regularly disposing of property, the need to report and pay any CGT due within 30 days of completion might feel like a bit of a bind, but HMRC has a solution.

To ease the process of reporting and paying Capital Gains Tax on property disposals, HMRC has developed a new web portal that will be available from April on the GOV.UK website. We’re told it’ll make the process easier and more convenient.

If you report other liabilities via Self Assessment, you’ll also need to ensure the gain is included on your return. Thankfully, HMRC are amending the Self Assessment process to allow you to do so.

If you don’t have any other Self Assessment criteria, you’re in luck. The new rules mean that you won’t have to register for Self Assessment to notify and pay a one-off property disposal.


Does it affect lettings relief?

Yes. At the moment, if your property is your main residence (or was at some stage) and was let for a period of time, you can get CGT relief on up to £40,000 of any gain.

From next month, this relief will only apply if you let the property out while you were also living there.

There’s also a change to the principal private residence status, too. Currently, the principal private residence period is defined as when the property has been a main residence for the last eighteen months of ownership, even if you weren’t living there.

From 6th April, this period will be reduced to just nine months.


How significant could the changes be?

For many people, the changes to CGT on property will result in significantly higher tax bills.

Let’s consider an example.

  • You purchased the property twenty years ago for £250,000.
  • Your property is now valued at £1 million.
  • You treated it as your main residence for ten years, and then let it for the subsequent ten.
  • Under current rules, the CGT on disposal of the property would be £29,173, payable by the end of January.
  • Under new rules, the CGT would be £44,231 and would need to be paid 30 days after completion.

It’s also worth bearing in mind that the above rules apply to each owner, therefore if the property in question is jointly owned, the couple will be liable for over £30,000 more in CGT after 6th April.

If you’re thinking of selling or gifting a property, it’s therefore advisable to plan accordingly for the new rules.


HMRC are looking for testers

If you want to help HMRC trial the new report-and-pay service for CGT on property disposals, they’re looking for people who want to test the service and offer feedback.

The test will take place online, and you’ll need to be someone who is a linked to a trust that is considering disposing of a UK property on or after 6th April 2020.

If you’re a Chandlers client, we’ll get involved, too, so just get in touch with our team for more information.

We can also offer advice and guidance on anything relating to the new CGT rules for property disposals. Please contact us and we’ll be delighted to help.