If you are a UK tax resident who is planning to sell a property on which capital gains tax will be chargeable (a second home or investment property, for instance), it is crucial to be aware of the upcoming changes to reporting requirements and payment deadlines.
In this blog, we will provide an overview of the current situation, as well as exploring the changes that will come into effect from April 6th 2020.
Residential Property Gains: How Much Tax Will Be Due?
For most assets, Capital Gains Tax is charged at a rate of 10 (higher-rate tax payers pay 20 ).
However, when it comes to property disposals, things are a little different. In the UK, gains made on property disposals are charged at a higher rate when compared to other assets. Basic-rate taxpayers currently pay 18 on property-related gains, and higher/additional-rate taxpayers pay 28 .
Do bear in mind, though, that all taxpayers have an annual CGT allowance (which has been set at £12,000 for the 2019-2020 tax year). If assets are jointly owned, individuals are permitted to combine this allowance with their partner to create a total allowance of £24,000 per annum.
There is also a mechanism know as principal private residence relief. Under the terms of PPR, a taxpayer can sell their home without paying any capital gains tax. To qualify, the property being sold must be the taxpayer’s main residence. Within that, there are a few exclusions to bear in mind (see below).
When is CGT Payable on Residential Property Gains?
As mentioned above, PPR is a key benefit for most homeowners profiting from the sale of a property. However, there are instances in which this relief might be limited. PPR only includes gardens and grounds of up to 0.5 hectares; and, whilst larger areas than this might still benefit from this relief if it is claimed successfully that these grounds are necessary for the ‘reasonable enjoyment’ of the residence, many rural property sales will be subject to some CGT charges (even if the property being disposed of is the vendor’s principal residence). In addition, any commercial elements will also be excluded from the permitted area (such as holiday lets or agricultural land utilised in conjunction with a grazing licence).
If you are selling a second home or a residential investment property, you will not be eligible for PPR and any gains will be taxed.
Changes to Reporting Requirements
In the case of property disposals on which capital gains tax are due, at present there is a length of time in which to make payment. For example, if you were to sell a relevant property in the 2018-2019 tax year, any tax payments would not be due until 31st January 2020 (a 10 – 22-month delay from point of exchange to tax payment). These payments would be made as part of the normal self-assessment process, and the sale would be disclosed via the corresponding self-assessment return (for taxpayers already within the self-assessment system. Taxpayers who are not registered to use the self-assessment return system can make disclosures via HMRC’s ‘Real Time’ capital gains tax service).
This is all set to change from 6th April 2020. Property disposals that are made from this date onwards (whether within the UK or overseas) must be reported to HMRC within 30 days from the completion date. For multiple property disposals, each sale will need to be reported separately. Payment will need to be made within the thirty-day timeframe, too.
Disposals do not need to be reported for overseas residential properties provided that the capital gain is going to be taxed on the remittance basis (or, alternatively, if the gain is being reported in the country in which the sale is made and double taxation relief is available).
Should the property disposal fall within PPR, the changes do not apply (the same applies to gains that are covered by the annual CGT exemption or losses brought forward from previous years).
If you are planning to sell residential property in the near future and think that the changes will affect you, please do not hesitate to get in touch with IBISS & Co. Our experienced team will perform an in-depth review of your current position and ongoing strategy, making sure that you take advantage of all possible reliefs whilst ensuring compliancy in 2020 and beyond.