Major changes to the tax regime for gains made from the sale of residential property will take effect from April 2020. They will affect how and when you are required to report and pay capital gains tax, this change will mainly be relevant to residential landlords and second home owners.
Current CGT deadlines
Currently, capital gains made by individuals are reported through self-assessment. This means, for example, if you sell a property between 6 April 2019 and 5 April 2020 you must declare it on your tax return and pay the tax you owe no later than 31 January 2021. New rules will apply for 2020/21 onwards meaning that the tax payable on certain types of gain will be due up to 21 months sooner. A recent report from HMRC shows that taxpayers likely to be affected by the new rules are not properly aware of the changes.
The new rules apply where tax is payable on gains made from the sale of residential property located inside or outside the UK on or after 6 April 2020. You will have just 30 days following completion to submit a provisional calculation of the gain and pay the tax you estimate is due. You will still be required to declare the gain on your self-assessment tax returns and pay, by the usual self-assessment deadline, any CGT due over and above your provisional payment.
The 30-day declaration and payment applies whether or not you are in the self-assessment system. If you are not HMRC says it will not require you to register for self-assessment just because you have made a capital gain. Instead, after the tax year in which you made a gain ends you will be required to review your provisional calculation and make any changes needed.
Estimating your CGT
To work out your provisional CGT bill you will need to estimate your taxable income for the year to determine how much CGT is payable at 18% and how much at 28%.
How we can help:
- Capital losses brought forward can be utilised to reduce the gain liable to tax.
- It may be worth considering the sale of other assets first, such as shares, which could trigger a capital loss to offset against the chargeable gain.
One more thing to be aware of is that Lettings Relief is ending in April 2020. Also the last 18 months exemption on the sale of a main residence is coming down to 9 months.
So if you are considering selling property in the near future you need to plan carefully to minimise your tax bill.