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Changes to Capital Gains Tax on the disposal of residential properties

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From 6 April 2020, disposals of certain residential properties must be reported and with any Capital Tax Gains tax due paid within 30 days of completion.

Before 6 April 2020, if you sold a residential property in the UK and made a gain, you would be required to report and pay Capital Gains Tax when you were ready to submit a Self Assessment tax return. As many property owners knew, the length of time between the disposal and the deadline for filing Self Assessment could be a year or even up to 22 months. This meant some owners might have forgotten about the transactions and failed to pay the relevant Capital Gains Tax due many months down the line, leading to penalties.

Accordingly, HMRC has now launched a new regime which brings forward the reporting and payment of Capital Gains Tax on disposals of certain residential properties. In this article, the Tax Accountants at Tax Agility outline the changes and encourage property owners who plan to sell their buy-to-let residential properties across London, Putney, Richmond and in Surrey to come and discuss the implications of this regime and Capital Gains Tax with us.

What are the new rules

In essence, all UK residents who sell a residential property (like a buy-to-let property) and make a gain of more than £12,300 (the tax-free allowance for 2020-21) will need to report to HMRC and pay any Capital Gains Tax due within 30 days of completion. Subsequently, you will also need to disclose the transactions on your Self Assessment tax return for the relevant tax year, usually on 31 January after the end of the tax year for most people.

To be sure that you can report within 30 days, you must have a government gateway account ready, along with information that allows you to calculate the gain. HMRC has confirmed that computations can be attached when you file the report. If you don’t have enough information to compute the gain, then you must give the best available estimates and amend the Capital Gains Tax return within 12 months.

If you make a loss, like you sell the property less than what you have paid for, then you do not need to report to HMRC within 30 days unless the loss is expected to be used against other gains made on other residential property disposals later in the year.

It is also worth noting that this new reporting requirement applies to each taxpayer rather than for each property.

Exceptions

  • This new Capital Gains Tax regime excludes no gain/no loss transfers (like transfers of property between spouses and civil partners), charities, pension schemes and companies.
  • It also excludes disposals that realise a gain that is relieved to leave no tax liability such as selling of one’s main residence.
  • Any gain made that is equal to or less than the Capital Gains Tax annual exempt amount (£12,300 for 2020-21) is also not in the scope.

Penalties

If you don’t report the transactions and pay the Capital Gains Tax due within 30 days, the penalties are:

  • £100 initial late filing penalty,
  • Further penalty if six months late, which will be 5% of Capital Gains Tax due or £300, whichever is greater
  • Interest will also accrue on late payment

Complicated scenarios

Tax is a complicated subject and you are likely to find yourself in a situation where you aren’t quite sure how the rules apply to you. Talk to one of our Tax Accountants if this is the case by calling 020 8108 0090 today. With offices in Central London, Putney, Richmond and in Surrey, we have helped many families and taxpayers by giving them independent and trusted tax advice.

Here are two examples of how we can help pertaining to the changes to Capital Gains Tax from 6 April 2020.

Example 1: Multiple owners on a property

If you and your spouse jointly own a buy-to-let and each of you stands to make a gain of £50,000 after selling it, then each of you must report it individually as this new regime applies to each taxpayer rather than each property, unless the property is transferred first into the sole ownership of a spouse on a no gain/no loss basis.

Example 2: Computing gains

Calculating Capital Gains Tax requires information such as brought forward losses from previous tax years. We can also help to gather information such as length of ownership, base cost, costs of improvements, incidental costs, among others. While losses realised on assets that have not been reported cannot be deduced from the residential property gain during computation, we can help you to include them (and other losses made throughout the year) when completing your Self Assessment tax return, thereby reducing your tax liability.

Tax Agility can help with Capital Gains Tax

At Tax Agility, we believe in providing solid tax advice that complements your investment strategies and saves your hard-earned cash. Make use of our free initial consultation so we can understand your situations and make the appropriate recommendations.

If you will soon be selling your buy-to-let and these new Capital Gains Tax changes are likely to apply to you, give us a call on 020 8108 0090 or contact us via our Online Form to kick-start the conversation today.

 

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.