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Capital Gains Tax Changes for Residential Property Transactions
As the 31st January deadline looms for the submission of trust, estate and personal tax returns, there is another significant date on the horizon for taxpayers, solicitors and other advisors dealing with residential properties.
A little known policy paper published by HMRC in July last year, set out the new payment window for residential property gains. HMRC’s intention in introducing the policy was to “ensure tax is paid sooner in respect of gains from residential property to reduce error and increase compliance”.
This will fundamentally change reporting and payment of capital gains tax (CGT) for residential property sales.
Considering it is such a large change and it will be happening quite soon, there is a general lack of awareness amongst taxpayers of how the new rules will impact disposals of residential property after 6 April 2020. It is certainly something that needs to be considered by those anticipating residential property sales in the first half of 2020.
Currently, where a CGT liability arises for UK residents on the sale of a residential property, the liability is declared through self-assessment tax returns and payable by 31 January following the tax year in which the gain arises.
From April 2020, where there is a disposal of a residential property by UK resident individuals, as well as non-resident individuals and companies, a CGT return will need to be submitted to HMRC within 30 days of the completion of the disposal and a payment on account of the full calculated CGT liability will be payable within the same 30 day window.
The calculation of the amount payable will take into account an individual’s annual exemption and any unused losses that may be available. A “reasonable estimate” of the individual’s income for the year will need to be made in order to calculate the CGT liability, due to the effect of income levels on the CGT rate to be applied.
For disposals by UK residents, the new reporting requirements will not apply where the gain on the disposal, taking into account any other disposals made in the same tax year, is not chargeable to CGT. This may be the case where the gains are relieved in full by principal private residence relief, or covered by the annual exemption or unused losses.
These reporting requirements will also not apply where the gain arises from the disposal of a foreign residential property in a country covered by a CGT double taxation agreement, or arises to a person taxed on the remittance basis.
The Property team at Rogers & Norton are experienced and knowledgeable and have a full understanding of a wide variety of property transactions, from helping first time buyers to buy to let investors and property developers. The team are not able to advise you on your tax affairs – it is important to seek advice from specialists.