Capital gains tax liability when selling a property: What's changed?
With the UK-wide coronavirus lockdown taking effect in March, the usual tax changes scheduled for the start of April may have slipped under the radar. As the property market in England starts to pick up, below we remind you of the capital gains tax (CGT) changes that came into force for those selling residential properties on or after 6 April 2020.
What were the old rules?
Capital gains tax is payable when a residential property is disposed of and a capital gain (i.e. a profit) is made, unless the property is exempt. The previous rules required the taxpayer to pay their CGT liability by the 31 January self-assessment tax deadline following the tax year in which the property was sold. This timescale for paying CGT provided some homeowners with a period of up to 22 months to prepare a tax return and have funds available to pay CGT. For example, if an individual sold a property on 7 April 2019 (so, falling in the tax year 2019/20), the tax had to be paid by 31 January 2021.
What is different about the new regime?
Where a property is not exempt, is disposed of on or after 6 April 2020 and gives rise to a capital gain, CGT will be payable within 30 days of completion of the sale. This deadline already applies to residential disposals by non-UK residents.The tighter deadline may create issues for taxpayers. A taxpayer will be required to calculate the tax liability, complete and submit a return, and have funds available to make the payment within the 30-day time limit. To complement the new system, CGT returns will move online and taxpayers carrying out the submission will need a Government Gateway account or provide digital authorisation for an agent to submit on their behalf.
Who does this change affect?
Most homeowners will continue to be exempt from CGT liability as private residence relief (PRR) will apply where the property sold is an individual's primary residence, i.e. their main home which has been lived in for the period of ownership. Even if a gain arises on the sale of an individual's primary residence, they will not have to pay CGT.The main categories of seller affected by the changes will therefore be buy-to-let landlords and property owners with second homes or holiday homes.It is also worth remembering that calculating a potential CGT liability can be complex and will require property owners to have complete records that allow them to easily identify the relevant figures, such as the cost of buying and selling the property, and how much has been spent on property improvements, e.g. building an extension.
Does it matter if the property is sold by personal representatives?
Disposals by personal representatives (PRs) occur as part of the estate management of a deceased property owner. As the new rules create an earlier deadline for reporting and payment of CGT, rather than affecting the category of people who are liable, they will equally apply to PRs who are selling a property. PRs are generally concerned with a large amount of administration, record keeping and payment of financial liabilities, therefore, it is crucial they are aware of this change and are able to make good any CGT liability within 30 days of the completion of a sale. If you require further advice on this change, please contact Rowena Stoute in our Trusts, Estates and Tax team on 01865 781 122 or by emailing rowena.stoute@freeths.co.uk.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.