Capital Gains Tax changes for property disposals
A number of significant changes to the way Capital Gains Tax (CGT) is reported and paid come into effect from April 2020. Currently, the usual due date for paying any CGT owed to HMRC on property disposals is the 31 January following the end of the tax year in which a capital gain was made. From 6 April 2020, any CGT due on the sale of a residential property by a UK resident will need to be reported and paid within 30 days of the completion of the sale transaction.
This change will apply to the sale of residential property that does not qualify for Private Residence Relief (PRR). The new rules will mainly apply if you are selling a buy-to-let property or a second / holiday home. The rules will also apply on the sale of any other residential property that does not qualify or only partially qualifies for PRR.
There are further changes to the PRR rules which will see the final exempt period for CGT purposes being reduced from 18 months to 9 months from April 2020. This relief applies even if you were not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances such as if the property owner is disabled or has to move into care.
Finally, if you let all or part of your main residence, you can usually benefit from letting relief of up to £40,000 (£80,000 for a couple). From April 2020, lettings relief will be reformed. This change means that lettings relief will only be available if you continue to live in the property whilst letting a part of your home.
If you are likely to be affected by these changes and are considering selling an affected property in the near future, it may be worth considering a sale prior to 6 April 2020.
For example, if you sell a property at the end of March 2020, any CGT will be due on 31 January 2021 whereas if you sell the property on 6 April 2020, the CGT will be due 30 days later. There will also be the issue of interest and penalties if any CGT due is not paid on time.