17th March, 2020, Stephenson Smart
An update from tax specialist, Kayleigh Wilson, on some changes that may affect you if you own residential property.
If you are selling your main or only residence, or currently letting your property, changes to final period exemption, letting relief and new compliance requirements mean that you may now be subject to paying an increase in capital gains tax, and sooner rather than later too.
Final period exemption
Historically, final period exemption meant that you were not usually liable to capital gains tax for the last 18 months of ownership, provided you lived in the property as your main residence at some point during your period of ownership. This gave protection for someone moving to a new main residence when having difficulty selling their original home. However, from 6 April 2020, the final period will be cut to nine months. Therefore, if you buy a new property before selling the old, it will be important to sell within nine months to avoid a possible capital gains tax bill.
Letting relief used to give up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was their former main residence at some point during their period of ownership. But, under new rules, letting relief will only be available where you jointly share occupation with a tenant. Only the period during which both the owner and tenant occupy the residence will qualify for letting relief. Lettings that occurred prior to 6 April 2020, that would have qualified for letting relief under the old rules, will become taxable under the new rules only.
Any UK resident that disposes of residential property from 6 April 2020 onwards, that gives rise to a capital gains tax liability, must now file a capital gains tax return and pay an estimate of the capital gains tax due within 30 days of completion. If the gain is covered by principal private residence relief no return is due, but this does mean the calculation to confirm this will need to be done within 30 days of the sale of the property. Failure to file a return, if due, could result in a penalty being issued.
Kayleigh says: "I feel many UK residents could be caught out by these major changes to the capital gains tax legislation and compliance requirements. The impact on your tax liability in relation to property transactions could be vast. Now, more than ever, it would be prudent to discuss these potential tax implications in advance. For peace of mind and further advice, please do not hesitate to contact us."