Residential property owners have had their fair share of tax changes to contend with in recent times. However there is a further matter on the horizon which I don’t think has been particularly well publicised. This concerns a fundamental change to the administration of Capital Gains Tax for sales or other disposals of UK residential property from 6th April 2020. On this date a new 30 day reporting and payment window will come into effect.
Individuals, trustees and personal representatives realising a taxable capital gain from the sale or other disposal of UK residential property will have to make a ‘residential property return’ and a payment on account of CGT within 30 days of the completion of the disposal. A return is not required where the capital gain is not taxable for example if it is covered by main residence relief but otherwise interest and penalties will be charged if the deadline is missed.
It is likely that these changes will mainly affect those disposing of second homes or rental property. An extra confusion is that the relevant date of disposal for CGT is the date of exchange of contracts whereas the 30 day payment window runs from the date of completion.
Currently CGT is payable by 31 January of the tax year following the year of disposal. Therefore this proposed new deadline is a major reduction in the timescale that applies between selling a residential property and paying the tax. This will cause problems where the calculation of the capital gain is complex. The legislation does however allow certain estimates and assumptions to be made in calculating the payment on account. Taxpayers who are within the self assessment system will have to report the capital gain on their annual tax return as well as completing the 30 day residential property return.
There is less than a year to go until these new rules come into effect and it is matter of some concern that these changes have not as yet been widely publicised. Taxpayers selling residential property after April 2020 are going to have to be very organised to ensure they meet the 30 day deadline. The danger is that people may be unaware that they have a tax obligation until well after the 30 day time limit. Even if they have an accountant to deal with such matters for them they may neglect to tell them about the disposal until it’s too late.