1. Sale of UK Residential Property – 30 Day Reporting
As from April 2020, we see the introduction of new stand-alone CGT tax return for disposals of UK residential property.
The returns will have to be filed, and any tax paid, within 30 days of the completion date. Although no return will be required if there is no tax liability, for many disposals this may not be clear until some calculations have been done.
It is important that the seller and the solicitor dealing with the disposal is aware who is to deal with the return, as late filing penalties will be incurred. Although HMRC expect most to be prepared and submitted by solicitors, some may require assistance from tax advisers / accountants.
The return will be done online, so this means the person completing the return will have to be authorised by the client to do so – something that can take at least a week, so this will all add to the pressure.
The calculation of the gain will be the first step. It will then be necessary to estimate the seller's income for the year in order to establish whether tax is due at 18% or 28% after the deduction of the annual exemption.
Any capital losses incurred so far in the year (up to the date of disposal) and losses brought forward can also be set off, and the tax calculated on the net gain.
However, if the taxpayer has a subsequent disposal in the same tax year of another type of asset, and that gives rise to a loss, the loss cannot be offset in-year unless there is a further disposal of UK residential property. Unless this is the case, the loss would only be offset by preparing a self-assessment return, at which point any overpaid tax would be refunded – but this means waiting until after the end of the tax year. This clearly can cause a cash flow issue for the seller.
For any clients with investment property (residential buy to let), if they are intending to market the property then this will be an issue for them. Once a sale has been agreed, the computations should be started and authority obtained from HMRC, in order to ensure the 30-day deadline is met.
So, if you are selling a property, make sure you consider whether or not there will be a tax charge, and if so, report this (and pay up!) within 30 days of the completion.
2. Letting relief and PPRAs from April 2020, the final period during which occupation of a PPR is deemed to be present is to be reduced, from currently 18 months (having been reduced from 3 years in 2015), to only 9 months. Therefore, anyone selling their property next year will be affected by the change. Note - the exception for those in a care home remains so that their final period will still be three years.
A group of people this is likely to have a significant impact on divorcing couples. If one party to the marriage (or civil partnership) moves out when the relationship breaks down, it is quite unlikely that the divorce will be finalised and the property disposed of within 9 months, so the partner who left the joint home will be exposed to a chargeable gain on any period in excess of 9 months. If they occupied the property together for a relatively short time, this may well be a substantial proportion of the gain as a whole.
The second change is the effective abolition of letting relief as we know it.
The relief will remain but will only be available when the property is occupied by the owner at the same time as the tenant (e.g. rent a room). This is likely to be quite a shock for some owners.
There will be many taxpayers who have previously been advised that letting relief will apply to their sale, but who do not realise that this only applies if the disposal takes place before 6 April 2020.
So, if you have let out a residential property (and do not live in at the same time), the only way to access letting relief is to sell the property before the new tax year starts.
If you have any questions about the upcoming changes, do not hesitate to get in touch via our contact form and one of our team will help.