Capital Gains Tax issues for UK property owners

HMRC have introduced changes which take effect from 6 April 2020 for any UK property owner who disposes of residential property.  Please note that disposal covers not only a sale but also disposal by way of transfer or gift.

The changes cover:

1. Private Residence Relief – Final Period exemption
2. Lettings Relief
3. Notification of disposal
4. Payment of Capital Gains Tax

PRIVATE RESIDENCE RELIEF – FINAL PERIOD EXEMPTION

For disposals of residential property which has previously been occupied as your only or main residence you are currently allowed to claim the final 18 months as an exempt period.  It is proposed that from 6 April 2020 this exemption will be reduced to 9 months.

This proposal is currently subject to ongoing consultation and we will update you regarding any changes.

Notably the final exempt period remains at 36 months for a disabled person or person entering a care home.

LETTINGS RELIEF

For years up to and including 2019/20 this relief has been available to individuals who had a property which they had occupied at any time as their only or main residence and then had used for residential lettings.

Subject to meeting the qualifications, this has been a valuable way of claiming additional exemption of up to £40,000 (double if the property was jointly owned) when the property was sold.

From 6 April 2020 however, the lettings relief exemption relief will be reformed and will only apply where the owner was in a “shared-occupancy” with a tenant.  This will make a significant impact on the capital gains payable.

NOTIFICATION OF THE DISPOSAL

 From 6 April 2020 any disposal of residential property must be reported to HMRC within 30 days of the sale, together with a calculation of the capital gains tax payable and payment of any tax calculated to be due for payment.

CALCULATION OF THE GAIN

 The calculation requires a return to be prepared and will reflect an estimate of the capital gains tax payable taking into account any period that you occupied the property as your only or main residence, unused losses from previous years, any lettings relief for a period of shared occupation with your tenant, any losses arising on the disposal of other assets in the year up to the date of sale and your annual exemption.  This calculation will be provisional until the tax year has ended and any post disposal changes can be applied.

The capital gains tax rate applied to the gain will be either 18% or 28% dependent upon the level of your other taxable income for the year.

CAPITAL GAINS TAX PAYMENT

Any capital gains tax payable because of the disposal must be paid to HMRC within 30 days of the disposal of the property.

Any adjustments to the provisional calculation may be adjusted through the Self Assessment system.

EXCEPTIONS

 The new reporting requirements do not apply in the following circumstances:

• Any gain is covered by private residence relief
• You have enough capital gains tax losses brought forward to cover any gain on the disposal of the residential property
• The gain on the disposal of the property is less that your available capital gains exemption

CONCLUSION

These changes may make a difference to your plans and budgets in relation to your residential property.  We can help you to prepare an estimate of the capital gains tax liability position following any changes that effect you from 6 April 2020.

We can complete the new returns reporting disposals and calculate the capital gains tax payable – we will require the information from you promptly to comply with the 30-day filing deadline so please bear that in mind when you make plans to sell a property.

Contact us at team@sbnta.com if you want to discuss this or if you have any queries.