Higher (and faster!) future capital gains tax bills for many property owners just around the corner

Published by Clive Relf on 16 January 2020

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April 2020 sees some significant Capital Gains Tax (CGT) changes for owners of residential property.

There are three situations impacted by these imminent changes:

  1. Where a property has been used as the owners’ home but remains unsold at the time they cease their personal occupation…final period of ownership change.
  2. Where a property has been occupied both as the owners’ home and has been let at some stage during the period of ownership…lettings relief change.
  3. Where capital gains tax is payable on a disposal of a residential property… tax payment change.

A total of some 40,000 property disposals annually are estimated to fall within the first two criteria above and such owners should anticipate larger tax bills in the future.  In contrast the third change will impact all disposals of residential property which give rise to a tax liability made after 5 April 2020.

Final period of ownership change

Private residence relief (PRR) allows a homeowner to generate a tax-exempt capital gain on the sale of their house and it is this relief which keeps most property owners out of the CGT net.

If you let your home, however, you should expect a CGT bill to arise calculated by reference to the period of letting (or any void periods) compared to the period of owner occupation. Current rules allow homeowners to treat the final 18 months of ownership as owner occupation even if they weren’t living there at the time.

From April 2020 (with a few exceptions), this final exemption period will be cut from 18 months to 9 months resulting in a greater proportion of any gain being treated as taxable.

Note that this change impacts both those who have let their homes as well as those choosing to retain their former home on moving out.

Lettings relief change

Lettings relief is an additional tax relief available on the sale of a property which, at different times, has been occupied as the owner’s home and used as a residential let. Lettings relief can exempt an additional gain of up to £40,000 per owner (£80,000 for a property jointly owned by two people – with a consequent tax saving of up to £22,400).

For disposals after 5 April 2020 lettings relief will only be available if the letting was undertaken whilst the owner lived in the property at the same time…making the vast majority of such owners ineligible from that date.  In effect from April this becomes a lodger relief rather than a lettings relief.

Tax payment change

Any CGT due on the disposal of a residential property will need, in future, to be paid much sooner than currently.  For example:

A gain arising on a property sale today would be disclosed on a taxpayer’s 2019/20 tax return with tax payable by 31 January 2021 which is some 11 months or so away.

In contrast, a gain on a disposal made after 5 April 2020 will be caught by a new reporting regime with any tax due no later than 30 days of the completion date of that disposal.

These changes will represent unwelcome news for a significant number of taxpayers. For advice geared towards your own particular circumstances contact Clive Relf, Tax Partner.

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