New reporting and tax payment deadlines
From 6 April 2020, a UK resident taxpayer will be required to make a return and payment of Capital Gains Tax within 30 days following the completion of a residential property disposal on a worldwide basis. These new requirements will not apply, however, where the gain on disposal is not chargeable to CGT, for example where the gains are covered by private residence relief.
These new reporting and payment requirements will mean that you will need to have all of the information available to make the return and pay your capital gains tax liability promptly once the property has sold. If you are thinking about selling a residential property, please speak to us early on to enable us to gather together all of the information that will be needed to calculate the capital gain arising so that we are ready to make the return and advise you of the tax payment you will need to make within this very tight timescale. There will be penalties and interest charges for not filing the return on time and not paying your tax by the due date.
Changes to Private Residence Relief and Lettings Relief – increased capital gains tax liabilities
Your capital gains tax liabilities may also increase as a result of two proposed changes to private residence relief that will also apply from 6 April 2020.
From 6 April 2020, the final period exemption will be reduced from 18 months to just 9 months and Lettings Relief (currently worth up to £40,000 per person per property) will be reformed so that it only applies in circumstances where the owner is in ‘shared occupancy’ with a tenant. These combined changes are likely to result in increased capital gains tax liabilities becoming payable because the reduction to the final period exemption will reduce the exempt part of the capital gain, thus increasing the proportion of the gain that is chargeable to Capital Gains Tax and the change to Lettings Relief will effectively abolish this relief entirely in most cases.
If you are thinking of disposing of a property which has not at all times been your only or main residence, but which you have lived in at some point during the period of ownership, you may wish to consider doing so before 6 April 2020 before the changes come in. For capital gains purposes, the date of exchange of contracts is taken as the date of disposal.
We will be happy to calculate for you the potential capital gains tax saving on a disposal before the changes come into force, if this will be of interest to you. Therefore, should you wish to discuss this further then please do not hesitate to contact a member of the tax team.