New UK Capital gain guidance for residential Property selling

A number of CGT changes for residential property come into effect on 6 April 2020, in the case of a main residence halving the final period disregard from 18 months to 9 months and also greatly restricting the lettings relief available. Only landlord who still live in part of the property themselves will be able to claim this type of relief.

The reduced final disregard can have significant impact but a more immediate impact for all taxpayers will be the requirement, after 5 April 2020, for any CGT due to be paid and reported within 30 days of the disposal being completed. Taxpayers are expected to use the new online “real-time” CGT reporting system (which HMRC is still trialling). Tax paid is treated as a “payment on account”.

Until now, UK residents reporting Capital Gains Tax (CGT) due on a disposal of residential property, whether by gift or sale, have been able to do so right up until the end of the January following the tax year in which the disposal took place. In fact, a normal ordinary Self Assessment (SA) Return will still be needed in most cases, to be  submitted within the current time limits, since the real time reporting system requires only the tax itself to be reported, not the actual gain.

The system raises a number of traps for individuals, personal representatives and trustees, not least of which is that it does not apply to all disposals:

  • No loss / no gain disposals
  • Non-residential property
  • Any gain is wholly covered by reliefs such as main residence relief or by losses brought forward
  • The disposal itself realises a loss.

Without proper planning, the tax payer may not always be able to assess whether the disposal falls within these exceptions in the short time allowed or to calculate the tax due. A further limitation is that losses of the same tax year will only be available if they have already been incurred. Any later losses will have to be included in the SA Return. Partially residential property will involve an apportionment of reportable gains.

Gifts will now have to be planned so that the tax can be found within 30 days of the gift taking place. So far there are no special rules where the tax is in fact to be met by the done so the onus will be wholly on the donor to report and pay tax.

For sales, a key point of the new system is that it measures the 30 day limit from “completion” of the disposal. The normal rule for determining when a disposal by sale takes place remains the date of exchange of contracts so that a sale may fall across two tax years as in the example below.

What may not be appreciated is that the new CGT report is not required if a normal SA return has already been submitted. As long as the taxpayer has done this before the deadline for reporting under the new system, the new system has no other impact.

Towards the end of the tax year, therefore, the taxpayer must take particular care. If contracts to sell are exchanged before 6 April 2020, the old rules still apply regardless of when the sale completes and the disposal must be included in a normal SA Return anyway. But, because of the point about “completion” of the disposal, if the tax payer does not submit the SA Return soon enough a CGT report will be required as well.

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