Capital Gains Tax changes – what you need to be aware of

Published by Jo White on 30 October 2019

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Significant changes to Capital Gains Tax are expected to be introduced from 6 April 2020.

From 6 April 2020 individuals, Trustees and Personal Representatives disposing of UK residential property will be required to make a payment on account of the Capital Gains Tax due within 30 days of completion and file a Return to report the disposal within this timeframe.

This is in line with the 30-day deadline which already exists for non-residents disposing of UK property.

A Return is only required if a payment of Capital Gains Tax is due as a result of the disposal. This means that a Return will not be needed to report gains which are fully exempt owing to Private Residence Relief or if the disposal results in a capital loss.

HMRC have confirmed that where the information needed to compute the gain is not available within the 30-day window, reasonable estimates will be accepted.

If the Return is filed late HMRC will apply the same late filing penalties as for Self Assessment Tax Returns and they will charge late payment interest on any unpaid tax.

Additionally, from 6 April 2020 the Private Residence Relief (“PRR”) rules will be less generous in certain situations.

PRR relief can completely exempt capital gains arising on the sale of an individual’s main residence. The relief is restricted if there are gaps where the individual does use the property as their main residence, unless the gap is covered by the “deemed occupation” rules.

Currently, the last 18 months of ownership are treated as a deemed period of occupation. Therefore, a proportion of the gain arising in the last 18 months of ownership is exempt from Capital Gains Tax even if the owner does not live in the property (provided they have previously occupied the property as their main residence).

This is being reduced to 9 months in most cases from 6 April 2020.

Additionally, Lettings Relief will only be available where there is shared occupancy (i.e. the owner and the tenant both live in the residence).

Lettings Relief is currently available if a property has been let on commercial terms and the owner has occupied the property as their main residence at some point during ownership (the owner does not have to live in the property with the tenant for the relief to be available).

Lettings Relief applies to the part of the gain arising on the disposal of the property which remains chargeable after PRR. Lettings Relief can exempt capital gains up to a maximum £40,000 per owner. The new shared occupancy rules will mean that most disposals will not qualify for Lettings Relief.

Therefore, if you own a second home standing at a capital gain which would currently qualify for Lettings Relief, you may wish to consider selling or otherwise disposing of the property before 6 April 2020 to maximise the reliefs available to you. Rather than an outright sale of the property you could, for example, consider gifting the property into Trust for the benefit of your family or transferring the property into a company which would trigger the capital gain on the property and secure the reliefs available to you. Each of these options needs to be assessed based on the current owners circumstances to ensure no unnecessary additional costs can arise from such planning. It is also recommended that you speak with a professional advisor before taking such steps.

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