There are a number of changes to how Capital Gains Tax (CGT) on the sale of property is both calculated and reported due to come into effect from April 2020.
Changes to how CGT is calculated
For an overview and reminder of how CGT is currently calculated on the sale of property, see our recent blog post on this.
As announced at Autumn Budget 2018, from April 2020 the government will make changes to PPR and lettings relief:
The final period exemption will be reduced from 18 months to 9 months.
Lettings relief will be reformed so that it only applies in circumstances where the owner of the property is in “shared-occupancy” with a tenant.
Final period exemption
Under current rules, where a property has been an individual’s main residence at some point, the final 18 months of ownership is deemed to be a period of occupation regardless of whether the property was occupied in those final 18 months. This is known as the final period exemption (which forms part of Principal Private Residence relief, PPR relief for short).
The final period exemption is being reduced from 18 months to 9 months on properties sold from April 2020.
The rule change does not affect the extended 36 month final period exemption that is in place in special circumstances, such as moving due to a disability or having to move into care.
Lettings relief
Where a property qualifies for PPR relief, lettings relief is given after PPR relief where part of the gain remains chargeable due to residential letting during a period of absence. Lettings relief is capped, depending on the amount of capital gain and PPR relief.
From April 2020, this relief will only be available to people who were sharing occupancy of their property with a tenant throughout the period of letting (essentially meaning the relief is only available where there is a lodger, rather than the property being a full buy-to-let). This will affect most individuals who rent out a property that they’ve previously lived in, and it will result in more of the capital gain on their property being subject to CGT.
Changes to how CGT is reported
Currently, individuals who sell property must report any capital gains on their self-assessment tax return, with the resulting tax being payable by 31 January following the year in which the gain was made.
For sales occurring from 6 April 2020, a provisional tax calculation must be submitted to HMRC within 30 days following completion of the sale of a residential property. Off the back of this calculation, any CGT due will have to be paid within 30 days of the completion date. Failure to pay on time will result in HMRC imposing interest and potential penalties. This new deadline applies even where no money has changed hands – e.g. when a property is gifted to a family member.
The gain will still need to be reported on the Self-Assessment tax return and any changes to the tax calculation will be dealt with at the time of the submission of the tax return (as getting a ‘final’ tax calculation done within 30 days of the sale is not always do-able) so there may be additional tax to pay at this point or potentially a tax refund due.
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Please contact us to find out how the above applies in your circumstances, how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
