Recently, I’ve highlighted the new 30 day reporting rule for Capital Gains Tax (CGT) which applies to disposals of residential property from 6 April 2020. As we draw closer to the start of this fundamental change in the tax reporting requirements it is important that anyone who may be planning a sale or gift of residential property in the UK from this date is aware of these changes.
From 6 April 2020 individuals, trustees and personal representatives realising a taxable capital gain from the sale or gift 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 date of the disposal.
Given that CGT is currently payable by 31 January of the tax year following the year of disposal this is a substantial reduction in the timescale between selling a residential property and paying the tax. Unless people are aware of these requirements prior to the sale and plan accordingly it is going to be difficult to meet this deadline, particularly where the calculation of the capital gain is complex. 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.
Disposals of foreign property are not caught by the new rules, nor are disposals by companies. A return is also not required where the capital gain is not taxable for example if it is fully covered by main residence relief but otherwise interest and penalties will be charged if the deadline is missed. The return will generally be made online but there will be a paper alternative.
Although these changes will mainly affect those disposing of second homes or rental property, there are other disposals that will be caught. The changes to main residence relief which also come into effect on 6 April next year, which reduce the final period exemption from 18 months to 9 months and restrict letting relief, will increase the probability of a capital gain arising and therefore the need to report under the new rules. A sale of a farm for example may require the sale of the farmhouse to be reported but not the sale of the land.
These new rules have not as yet been widely publicised by HM Revenue but we can expect that to change as we get closer to 6 April 2020. Accountants, Solcitors, Estate Agents and Land Agents all need to be aware of these changes to help their clients avoid penalties.