Get Ready For Changes To Capital Gains Tax For UK Property Sales

There are five new capital gains tax rules planned for property sales after 6 April 2020 that may affect your tax position. These were announced prior to the full COVID-19 outbreak in the UK so it may be that some or all are delayed due to this. 

The planned changes are summarised below:

1. The deadline for paying Capital Gains Tax after selling a residential property in the UK is changing on 6 April 2020.

From 6 April 2020, if you are a UK resident and dispose of a residential property in the UK you may need to report the disposal within 30 days to HMRC and pay any Capital Gains Tax owed at that time.

Penalties can be charged for late reporting and interest charged on any tax paid late.

Currently, only non-UK residents need to report a sale of a property in the UK to HMRC within 30 days and this requirement will continue in the next tax year. 

If you may need to declare a gain under these new rules, please do get in touch. 

The new rules for UK residents

If you live in the UK, you may need to report your capital gain within 30 days and pay Capital Gains Tax after submitting your report when you sell or otherwise dispose of:

• a property that you've not used as your main home
• a holiday home
• a property which you let out for people to live in
• a property that you've inherited and have not used as your main home

You will not have to make a report when:

• a legally binding contract for the sale was made before 6 April 2020
• you meet the criteria for full private residence relief
• the sale or disposal was made to a spouse or civil partner
• the total gains in the tax year are within your tax free annual allowance
• you sold the property for a loss
• the property is outside the UK

The new rules also apply to UK trusts.

The rules for non-UK residents

If you are a non-UK resident you must continue to report sales or disposals of interests in UK property or land, regardless of whether there is a Capital Gains Tax liability within 30 days of completion of the disposal.

You will no longer be able to defer payment of Capital Gains Tax via your Self Assessment return and any tax owed must be paid on request after the report has been accepted.

This requirement to report covers disposals of residential properties, non-residential properties and indirect disposals.

The rules also apply to non-UK resident trusts.

2. Reduction in deemed occupation period

From 6 April 2020, the final period of ownership that is always eligible for relief where a private residence relief claim is being made is being reduced from 18 months to nine months.

The existing 36 months available to people with a disability or those in a care home will remain.

3. Loss of lettings relief

From 6 April 2020 lettings relief will only be available if the property owner was living in the property while it was rented out.

Lettings relief was previously available if the property had been used as a principal private residence and had also been let during the period of ownership. Lettings relief was given up to the lowest of the private residence relief claim, the gain made on letting or £40,000 and therefore could provide a significant reduction to a capital gain.

Most sellers will now find that they are not eligible for lettings relief at all.

4. Changes to the transfer of ownership provisions

From 6 April 2020, when a person transfers an interest in a property to their spouse or civil partner, the recipient inherits the transferring spouse's ownership history. This will include previous use of the property regardless of whether the property is their main residence at the time of the transfer.

This will benefit tax payers because currently, the spouse or civil partner only inherits the ownership history of the property if that property is their main residence at the time of the transfer.

Couples considering transferring a property on which there may be a private residence relief claim may wish to delay the transfer until the new tax year if that property is not currently their main residence, as this should increase the private residence relief available when the property is eventually sold.

5. Nominating a principle private residence

The final change is that from 6 April 2020, it should be possible for a person to make a nomination specifying which of their two or more residences is their principal private residence later than the two year rule currently allows provided that they have not made a nomination previously and the interest held in one of the homes has a negligible market value. The latter point mainly covers instances where one residence is a property on a short term rental rather than a property owned by them and will therefore be useful in instances where the tax payer owns one home and rents another home and clarity is needed as to which is their principal private residence.

Please do feel free to contact us if you have any queries.