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Preparing for CGT Changes on Residential Property

What Changes are Coming into Effect

Under current rules, an individual must include details of any capital gains they realise from the sale of residential property on their self-assessment tax return and file this to H M Revenue & Customs (HMRC) on or before 31st January following the year in which the disposal takes place.

Example

Bob made a capital gain of £25,000 from the sale of a rental property on 1st December 2019. This disposal falls into the tax year ended 5th April 2020. Bob must ensure that his tax return is filed with HMRC by 31st January 2021. The capital gains tax (CGT) liability from the disposal is also due on 31st January 2021.

Under the new rules, Bob must now file a tax return to HMRC within 30 days of the sale of the property being completed. The date that any CGT liability is due is also brought forward. Under the new rules, CGT on the disposal of residential property after 6 April 2020 is due 30 days after the sale is completed.

How do these Changes Impact on your Overall Tax Affairs?

Notwithstanding that you must file a separate tax return for disposals of residential property, you still have a responsibility to file your self-assessment tax return on the usual filing dates. The tax return will include details of your total income and any other capital gains realised in the relevant tax year.

Calculating the Tax on the Sale of Residential Property

Tax must be calculated and paid on the disposal, ignoring any other CGT disposals made in the same year which are not subject to these rules. Any available capital losses/annual exemption can be offset in calculating the tax due. Where there is more than one disposal in the year, the tax is calculated on the second disposal taking the first disposal into account and deducting the tax paid on that disposal from the total amount due. This means that the cumulative amount of CGT due under these provisions is calculated each time a disposal is made. As these tax payments are merely interim payments of CGT the final calculation will be performed as usual through the self-assessment tax return.

Practical Issues

If you are selling your main residence and the gain is covered in full by principal private residence relief (PPR) then there is no need to file a tax return within 30 days. However, there may be situations where relief is not due on the full gain (i.e. divorce or working abroad). Care will need to be taken in these situations and you should take professional advice to determine whether you have any exposure to CGT.

 

If you have any questions on these changes or want to find out more information, please contact Malcolm Emery.

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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