Buy-to-let landlords and second home owners will be hardest hit by a number of changes to tax rules being introduced in April 2020, as Matthew Grief, Tax Specialist at Moore explains
CGT ON RESIDENTIAL PROPERTY
New rules from HMRCmean that any capital gains on the sale of UK residential property will need to be reported to HMRC and paid within 30 days of the date of the completion of the property sale. If there is no gain to report or the gain is covered by exemptions or losses, you won’t have to complete a property disposal return. Previously, any Capital Gains Tax (CGT) due after the date of the exchange of contracts for a residential property sale had to be paid by the end of January in the following tax year –meaning sellers had between nine and 21 months before they needed to make a payment. The requirement to pay within 30 days could have an impact on cash flow, particularly where the property is sold at undervalue or is gifted to a family member (with the exemption of your spouse who is specifically exempt). The need to prepare a formal Capital Gains Tax computation is an additional reporting requirement – so where you already complete a Self- Assessment Tax Return, you will still need to report the property disposal there. Penalties for late submission of the CGT return will be applied in the same way as they are currently for Self-Assessment Tax Returns. We recommend that you seek advice from your accountant or tax adviser about any capital disposals as soon as they happen. For more complex sales, the best advice is to start the process of collating information as soon as you take the decision to sell the property.
Prior to April 2020, landlords selling their former home could potentially claim up toamaximum of £40,000 relief from capital gains tax (this was per person, meaning that married couples could claim up to £80,000 for jointly owned property). From next year, this lettings relief is being restricted to homeowners who are sharing the property with the tenant. Other than in a ‘rent a room’ scenario this is unlikely to be the case, and so for most landlords, lettings relief will no longer be available.
PRINCIPAL PRIVATE RESIDENTS RELIEF
At the moment, landlords who are selling a rental property that was once their home could claim capital gains tax relief on the sale for up to 18 months after moving out. This is being reduced to nine months from April 2020.
THE IMPORTANCE OF TIMING
Anyone planning to sell rental property or a second home in the near future will need to consider the impact of these changes carefully. Any property sold before 6 April 2020 will be subject to the current rules, and would still benefit from the final 18-month relief and lettings relief, and any capital gains tax for the 2019/20 tax year would not be due until 31 January 2021.
Moore If you need further advice about the impact of the CGT changes, please contact Matthew Grief at Moore on 01733 397300 or visit www.moore.co.uk