Changes_ to_ Capital_ Gains_ Tax_ on_ UK_ residential_ property

14 October 19David Boyd
Changes to Capital Gains Tax on UK residential property

Reporting disposals and paying tax on residential property gains

Currently, where a capital gain arises for UK residents on the sale of a residential property, the gain is declared through the annual self-assessment tax return with any capital gains tax payable by 31 January following the tax year in which the gain arises.

From 6 April 2020 UK resident individuals and trustees, who dispose of UK residential property will be required to:

  • Complete a standalone capital gains tax (CGT) return to report the disposal to HMRC within 30 days of the sale completion
  • At the same time, pay any tax that is due on that return

These changes will apply to all UK residential properties and so will affect anyone selling a buy to let property, a second home or their main residence where full principal private residence relief is not available.

The standalone return is essentially a provisional calculation and the subsequent payment of tax is treated as a payment on account. The disposal is then included on the annual self-assessment tax return and the tax recalculated (to include any other chargeable disposals which may have arisen during the year) with credit given for the CGT paid on account. A CGT return is not required if no tax is due.

Changes to reliefs

For disposals after 6 April 2020, Finance Bill 2020 proposes further restrictions to the number of reliefs that may be available. You can currently benefit from principal private residence relief if your property is your main or only residence, and lettings relief on for the period where your property is let out.

Principal Private residence relief – Current rules allow the final 18 months of property ownership to be treated as ‘deemed occupation’ regardless of whether you lived in the property during the final 18 months of ownership, and therefore exempt from CGT. However, changes coming into effect from 6 April 2020 will mean this relief will be reduced from 18 months to 9 months.

Lettings relief – You can currently benefit from a ‘letting relief’ if your property is let out as residential accommodation. This relief potentially offered a maximum of £40,000 of relief for the any gain made during the period where the property was let out. The expected change from April 2020 will essentially mean that lettings relief will only be available where the owner occupies the property with the tenants at the same time, effectively becoming a ‘lodger relief’. For how lettings relief has been historically applied for most people, the lettings relief will effectively be withdrawn.

Action plan

Take time now to assemble, for each residential property you own –

  • A full cost history (including original cost, significant improvements or extension expenditure, fees on purchase etc)
  • Valuations (at March 1982 if you owned the property at that time, probate value if the property was inherited)
  • In relation to your main residence, details of any periods of non-residence or letting

With these changes in mind, as well as the tight 30-day reporting deadline it is essential that if you are contemplating a sale you speak to us as soon as possible to offer appropriate advice and ensure you meet the reporting requirements.

If you have any queries, please feel free to call 020 7383 3200.

You may also be interested in our Tax Planning services.