On 6 April 2020 capital gains tax (CGT) on property sales will be subject to some new rules which may have a significant effect on the amount of tax you pay and the date you have to pay it.
Contrary to popular belief, the profit you make when you sell your home, or a former home, is not automatically exempt from CGT. The tax exemption only applies to gains that relate to periods in which you lived in the property as your main home. However, it can be extended to certain periods when you were not living in that property.
For example, the last 18 months of ownership are currently exempt from tax, which is extended to 36 months where the owner or their spouse is disabled or moves into residential care. However, the 18-month exemption is due to be cut to 9 months for sales made after 5 April 2020 (albeit the 36-month care exemption will remain in place).
Where you have let your former home at any time, even before you moved into the property, up to £40,000 of the gain can be exempt from CGT for each owner. This ‘lettings relief’ will be restricted for sales from 6 April 2020, so that it will only apply where the owner was in occupation at the same time as the tenant. The change will mean that nearly all periods of letting in the past will no longer qualify for the tax exemption.
Finally, property owners who have made taxable gains on sales of residential properties after 5 April 2020 will have to send a new standalone return to HMRC and pay the tax due within 30 days of completion of the sale. This is different to the current system where taxpayers have until 31 January after the end of the tax year in which the disposal takes place to complete a return and pay the tax due.
The new return will have to be prepared online either by the taxpayer or by their tax agent. The gain will also need to be reported on the self-assessment tax return due to be filed before 31 January and any adjustment to the tax payable can be made at that point.
Talk to us if you are planning to sell your home or buy-to-let after 5 April, so that we can calculate if any CGT will be due on the disposal and that the 30-day return deadline can be met and penalty charges avoided.
