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December 29th 2019

Changes to capital gains tax on private residences

April 2020 will see the introduction of major changes to capital gains tax (CGT) on the disposal of residential property.

A recent blog explained how Private Residence Relief is going to be reformed. This article focuses on how UK resident individuals will be affected by measures to accelerate the CGT payment date.

Currently, a private individual pays CGT anywhere from 10 to 22 months after the date of sale, since CGT is due nine months after the end of the tax year in which the disposal takes place. Effective 6 April 2020, however, UK residents will have to pay CGT on the disposal of residential property no later than 30 days after the date of disposal.

The new rules apply to any direct disposal of UK land on which a "residential property gain" accrues on or after 6 April 2020. Similar rules have already been in place for non-UK residents for some time now.

A return must be made to HMRC within 30 days of the completion date, although no return is required for disposals where no tax is due (for example where a gain is fully covered by Private Residence Relief, or relieved by capital losses). Tax must be paid within the same 30 day period.

Since the taxpayer's CGT position for the tax year as a whole may be unknown at the time of the disposal, the tax calculation at the return stage is a "notional" calculation - in other words an estimate!

Any unused capital losses, and the taxpayer's CGT Annual Exempt Amount, may be taken into account in working out the notional CGT. The applicable rate of tax is determined based on a reasonable estimate of the individual's taxable income for the year, since this again will probably be unknown at the time of the disposal.

The payment is treated as a payment on account of CGT, and any under/ overpayment of tax will normally be paid/ recovered once the taxpayer's final position for the tax year as a whole is known - usually once their Self Assessment return has been prepared and submitted.

In practice this new regime is likely to pose enormous challenges for taxpayers and conveyancers, who in many cases will be unfamiliar with even the most basic aspects of the CGT regime. Taxpayers who are contemplating the disposal of a residential property in the coming months are therefore strongly advised to contact their accountant for detailed and specific advice, before the disposal takes place. This is of particular importance where a gain is likely to arise that may not qualify in full for Private Residence Relief; landlords, in particular, will be affected.

If you may be affected by the issues discussed in this article, contact us for assistance today.


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