Changes ahead – CGT on residential property

Over recent years we have seen many changes to the taxation of UK property, particularly for non-UK residents and for residential properties held in companies. Unfortunately, there is more to come!

From 6 April 2020, further changes will apply to when and how the sale of UK residential property is taxed and these changes will apply to UK resident individuals as well as some other taxpayers. If you are thinking of selling a property or are advising on a property sale, you need to be prepared.

Timing of tax payment

Under current rules, capital gains tax (CGT) is due to be paid by the 31 January following the end of the tax year of disposal, which could be as much as 22 months after the date of the disposal.

For disposals on or after 6 April 2020, where a chargeable gain arises, taxpayers will be required to report any gain and pay tax on the gain within 30 days of the completion of the sale of UK residential property. The tax will be reported and paid based on a “reasonable estimate” of the amount due. The gain will still be recorded in the individual’s self assessment tax return and any over or under payment of tax will be dealt with then.

HMRC is developing a system for reporting and paying the tax which is currently being tested. The bad news for tax agents is that separate agent authority will be required for this service, which will not be linked to the self assessment agent authority.

Calculation of taxable gain

For a taxpayer selling a property which has at some stage been their main residence, and who therefore will be claiming Private Residence Relief (PRR), there are two changes effective from 6 April 2020 which could affect the amount of tax they pay.

• Previously, the last 18 months of ownership automatically qualified for PRR, known as the final period exemption. From 6 April 2020, this exemption will be reduced to nine months.
• Also, letting relief will only be available if the owner was living in the property when the letting occurred. In most cases therefore, this previously valuable relief, reducing a capital gain by up to £40,000, will no longer be available.

Be prepared

Given the coming changes, if you are in the process of selling a residential property, you might want to try to complete before 6 April! Although that may be easier said than done …