Watch Out! Recent Changes to Capital Gains Tax May Apply to Your Property Disposal

Planning to sell your investment property? You need to be aware of a few changes in tax regulations that came into force recently on 6th April 2020.

It is important for everyone – both UK and non-UK residents who are involved in the sale of residential property to understand the changes as any delay in reporting to HMRC may lead to penalties or interests.

Before getting into details of what has changed – Capital Gains Tax is a tax on the profit when you sell or dispose of an asset that has increased in its value.

What has changed on the CGT of a property?

A residential property that is used as the main home is not subject to Capital Gains Tax on a sale, even if there is an increase in the property value.

However, for buy-to-let investment properties or holiday homes sold at a profit would usually be subject to CGT.

Before the tax changes on 6th April 2020, the taxpayer pays the CGT based on the calculation on how much is due and then declares that in their next tax return. But there are some changes made to it, as the sellers of UK residential property should

• Report the sale or disposal to HMRC within 30 days of completion
• The payment of any due tax should be made at that time
• Penalties and interest will be applied to late filing or payment

UK taxpayers need to report to HMRC and pay CGT when they sell or dispose of

• property that is not used as their main home
• property that they inherited and have not used as their main home
• Holiday homes
• Property let out for people to live in

You need not report to HMRC and make a payment if

• A legally binding contract for the sale was made before 6th April 2020
• You convene the criteria for full Private Residence Relief
• The sale or disposal was made to a spouse or civil partner
• Any gains which include any other chargeable residential property gains in the same tax year are within your tax-free allowance – which is called as the Annual Exempt Amount
• You sold the property for a loss
• The property is outside the UK

Non-UK residents 

Even non-UK residents, irrespective of whether there is CGT liability must report sales or disposals of interest to UK property or land within 30 days of completion of the disposal. You will no longer be able to defer payment of CGT through your Self-Assessment return. Any tax owed should be paid within the 30-day reporting and payment period. The rule includes the disposal of residential property, non-residential property, or indirect disposals.

Online Service 

HMRC has launched a new online service for reporting and paying any Capital Gains Tax owed and it is accessible via this link.

Private Residence Relief applies when UK taxpayers dispose of their homes if all the following conditions are met

• You have 1 home and have lived in it as your main home for all the time you owned it
• You have not let part of it out – this does not include having a lodger
• You have not used part of it for business only
• The grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
• You did not buy it just to make a profit

The relief is automatic. A UK taxpayer does not have to do anything to claim the relief.

UK taxpayers selling or transferring investment properties should seek professional advice from online accountants or personal tax accountant.