26th November, 2019, Stephenson Smart
Chris Goad FCA of Stephenson Smart explains the forthcoming new Capital Gains Tax rules for people disposing of property.
For people about to dispose of property there are important tax changes on the horizon, because from April 2020 you'll need to factor in new capital gains tax (CGT) rules.
Until now, private residence relief (PRR) has meant there is usually no CGT to pay on the sale or disposal of your main/only residence - but the 2018 Budget announced important changes to the final period exemption and lettings relief.
Currently, the final period exemption means you’re generally not liable for CGT on the sale of a property which was once your home (even if you no longer live there) for the last 18 months of ownership.
However, from April 2020 that will be cut to nine months. The change could affect significantly higher numbers of property transactions, and if you're buying a new property before selling the old one, it will be important to sell within nine months to avoid a possible CGT bill.
As for lettings, the current rules allow up to £40,000 relief (£80,000 for jointly-owning couples) for letting part/all of a present or onetime main residence.
Under the new regime, lettings relief will only be available when occupation is jointly shared with a tenant.
These new rules will apply to disposals from April 2020 regardless of when the period of letting took place which is likely to considerably reduce the scope of the relief.
April 2020 will also see a major change to current CGT deadlines when disposing of residential properties.
In the future, there will be a 30-day window after the disposal completion date in which to file a return, calculate and pay the CGT due.
If no payment is due (for example, if PRR is available in full) reporting will not be required.
The change mirrors the current obligations of non-UK residents.
Since April 2019, non-resident CGT has applied to direct and indirect disposals of UK land or property, with non-resident companies being chargeable to corporation tax.
There is a 30-day reporting requirement even if there is no tax to pay, and where tax is due, it must be paid within 30 days of completion.
As with any changes to taxation, complexities can arise and taking your individual circumstances into account is essential.
It's always prudent to discuss the potential tax implications of any property transaction, and for peace of mind, please contact one of our qualified tax advisers for more details and information specific to your situation.