Capital Gains Tax – changes from 6 April 2020
Capital Gains Tax – changes from 6 April 2020
From 6 April 2020 HM Revenue & Customs will implement a number of changes to the way in which capital gains tax on the sale of residential properties is calculated, and when associated liabilities are due for payment.
Capital Gains Tax – due date for payment of any liabilities
Under the current legislation, where a UK resident tax payer disposes of a residential property, subject to capital gains tax, any tax calculated is payable by 31 January following the tax year in which the disposal is made.
For example, if a UK resident tax payer were to dispose of a residential property on 1 February 2020, any capital gains tax calculated wouldn’t be due for payment until 31 January 2021. The disposal is reported as part of the tax payers self-assessment tax return, which is due for submission to HM Revenue & Customs on the same date.
However from 6 April 2020, due dates for payment of any capital gains tax, along with reporting the disposal to HM Revenue & Customs, is aligned with that of a non-resident tax payer. This means that any capital gains tax, and appropriate submissions, are due within 30 days of the disposal taking place.
Failure to meet this deadline will lead to penalties being levied by HM Revenue & Customs.
For example, if a UK resident tax payer disposes of a property on 1 May 2020, any capital gains tax calculated would be due for payment by 31 May 2020. This, when compared to the previous example, demonstrates the significant impact the change has on any capital gains tax payment due dates.
A separate payment for capital gains tax and associated report to HM Revenue & Customs must be made for each disposal in a tax year, commencing from 6 April 2020 onwards.
Capital Gains Tax – restriction of lettings relief
In addition to the above, HM Revenue & Customs will also introduce a restriction to the availability of lettings relief when calculating a taxable gain made on the sale of a residential property. This will also be implemented from 6 April 2020.
Currently, lettings relief is available to those that have lived in a property as their main residence at some point during their ownership, whilst also being rented out. When calculating any taxable gain, a gain associated to the period in which the property was not considered the individuals main residence may be utilised by claiming lettings relief.
From 6 April 2020, lettings relief will only be available to those who have lived in the property whilst also renting this out. Effectively, for lettings relief to be available, the property must be considered as the shared occupation of the landlord and tenant.
This will see the availability of lettings relief restricted, thereby increasing landlord capital gains tax position.
Capital Gains Tax – reduction of principle private residence relief
Finally, HM Revenue & Customs will also introduce a further restriction to the principle private residence relief that can be claimed when a former home is disposed of. At present, when disposing of a former residence, a taxpayer can claim a final 18 month exemption by assuming that for this period the property is subject to principle private residence relief. This was previously reduced from a 36 month period.
From 6 April 2020, this 18 month period will reduce to the final 9 months.
This change will also see Capital Gains Tax increase for those landlords currently renting their former residence.
If you are looking to sell a residential property that may be subject to Capital Gains Tax, or wish to understand any of the above further, please contact your local Perrys branch.