Changes to capital gains tax in 2020 – what you need to know

The last few years have seen a number of changes to the UK’s tax regime with the latest coming into force on April 6th 2020. The changes affect the Capital Gains Tax (CGT) reporting deadlines and the amount payable when an individual sells a residential property that they have not used as their main home such as a holiday home, a buy-to-let property or a property that has been inherited and not used by them as their main home.

To help you understand the new rules we have put together a summary of the key points.

Reporting and payment of capital gains tax to HMRC within 30 days

From April 6th 2020, any individual who sells a residential property on which CGT is due, such as a buy-to-let property or a second home, must calculate the CGT due, submit this calculation to HMRC and pay the tax due, all within 30 days of the completion of the sale.

The information must still be included on the individual’s personal tax return so that any over or underpayment can be taken into account when the individual’s final tax return for the year is completed and verified.

Anyone who does not do this within the 30-day timescale may receive a penalty from HMRC and be liable to pay interest on the amount owed.

Previously, CGT was included on the individual’s personal tax return and was payable by January 31st of the next tax year.

HMRC has launched a new online service to allow investors to report and pay any CGT owed. You can find out more about CGT at https://www.gov.uk/topic/personal-tax/capital-gains-tax.

Loss of letting relief

If you sell a residential property that you have lived in but have also rented out during the period of your ownership, letting relief of a flat rate of £40,000 could be deducted from any CGT due on the sale of that residential property.

This letting relief is no longer available – the only exception to this is if the property was let while the owner also lived there.

Reduction in taxable gain due to final period of ownership

Previously, where a property was sold and the owner had used as his or her principle private residence for part of the period of ownership and rented during the other part, then any gain made during the last 18 months of ownership was exempt from CGT. Now, principal private residence relief in this scenario, is available for only the last nine months of the individual’s ownership of the property meaning that relief on any capital gain made during the last nine months of ownership has been halved.

Seek specialist tax advice

If you are planning to sell a residential property and are unfamiliar with these new changes to CGT, how it is reported to HMRC and how CGT is now calculated, we would strongly recommend you speak to your accountant. The new 30-day payment rule doesn’t leave landlords much time to calculate their CGT liability so there is some urgency to this now.

Our overseas property management clients will already be familiar with our administration services which include tax advice and the preparation of HMRC tax returns via our tax return service.

If you would like information on how these changes might affect you, Benham and Reeves have produced a comprehensive Tax Guide for Overseas Investors. To get a free copy of the guide, you can request a copy here.