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Big Changes Have Arrived on Capital Gains Tax Payments on Residential Property Sales

July 15, 2020

By Chris Moir, Head of Personal Tax at Newcastle-based RMT Accountants & Business Advisors

People looking to sell their homes need to be ready to act quickly on a major change in the rules around how and when Capital Gains Tax (CGT) liabilities are recorded and settled.

Taxpayers currently have until the 31 January self-assessment tax deadline after the tax year in which the sale is made to complete a tax return and pay the CGT that’s due, a situation which, depending on the timing of the sale, means the money is due between ten months to 22 months after the transaction is finalised.

But from 6 April 2020, anyone selling a residential property which hasn’t been your main residence for the whole period of ownership needs to submit a new standalone online return to HMRC and then pay the tax due within just 30 days of completion of the sale.

This sets a tight deadline for calculating the CGT, reporting the gain and paying the tax that’s due.

And because the new return has to be done online, taxpayers will need to have a Government Gateway account to either submit the return themselves or to authorise their advisors to do it for them.

While people who have lived in their house for the whole of period of their ownership are usually covered by CGT private residence relief, which means no taxable gain arises on its sale, the change is likely to have a big impact on those selling either second homes or buy to let properties which have accrued taxable gains during their ownership period.

Rules announced in the 2018 Budget for lettings relief and a reduction in the final qualifying exempt period of ownership from 18 to nine months will also come into force from 6 April this year, adding an additional consideration to the whole process.

Property owners will need to make a reasonable estimate of the tax payable on the sale, as the rate of CGT will depend on the taxpayer’s income levels for the whole tax year – the amount that they earn will influence where an 18% or 28% CGT rate should be applied.

This may be fairly straightforward for homeowners with a steady, predictable income, but becomes more complex if income levels are uneven or more than one property is sold in a year.

The change has the potential to have a big impact if homeowners don’t keep their records properly up-to-date, especially given the very short period of time that is available to get everything done when the sale has gone through.

Having all the required information to hand, such as when the property was bought, how much it cost and what investments you’ve made in improvements during the period of ownership, will mean you can get things moving at the earliest possible opportunity.

It may also make sense to get an independent professional valuation done of the property, to avoid time being lost as a result of any disputes arising.

Taking a planned, structured approach to all aspects of any property sale, allied to the right professional advice, is an essential part of making the transaction as smooth as possible, and the new emphasis being placed by HMRC on identifying and collecting CGT payments in double-quick time means this aspect of it should remain high on your priority list.

Due to the coronavirus (COVID-19) pandemic, late filing penalties will not apply on disposals of UK residential property completed on or after 6 April 2020 and before 1 July 2020 and reported up to 31 July 2020. Transactions completed from 1 July 2020 will receive a late filing penalty if they are not reported within 30 calendar days and interest will be charged if the tax remains unpaid after 30 days for all transactions from 6 April 2020.

RMT provides the full range of financial and business advisory services through its specialist healthcare, tax, accountancy, corporate finance, information technology and recovery & insolvency teams, and works with firms of all sizes both within and outside the North East.

For further information on RMT Accountants & Business Advisors’ specialist tax services, please contact:

Chris Moir (Head of Personal Tax)
T: 0191 256 9500
E: chris.moir@r-m-t.co.uk

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