Changes to Capital Gains Tax
Updated: Mar 18, 2021
Capital Gains - changes to the disposal of residential properties from 6th April 2020.
There are 2 changes which will apply from 6th April 2020 to letting of residential properties which at one stage was the individual’s main residence.
Principle Private Residence (PPR)
Currently if the property was once your main residence the last 18 months is deemed as qualifying for PPR (which means this period is exempt from tax) and this will apply even if you were not living there at the time of sale.
The new changes which come into effect from 6th April 2020 will now mean the PPR relief will reduce to 9 months which could potentially increase the capital gain.
Currently where a property was at some stage a persons main residence but had also been rented out, a lettings relief of up to £40k per person (a property in joint names would give £80k) was available to reduce the taxable gain or in most cases would remove any taxable gain.
From 6th April 2020 this letting relief will only be available to those individuals who are living at the property at the same time as the letting.
The lettings relief will be known as ‘lodgers’ relief’.
Changes to all disposals of residential properties
From 6th April 2020, 30 days after the completion on a residential letting property or second home you will be required to report and make a payment on account to HMRC the capital gains tax incurred on the property.
Currently those who complete on their house sale before 6th April 2020 will have until 31st January 2021 to declare a potential capital gain on their tax return and make payment. Going forward from 6th April 2020 the changes will have a big impact on cash flow as people will need to ensure they keep some of the funds from the sale of the property to pay their capital gains tax within the 30 days of completion.
No returns are required in the 30 days for no gain/no loss disposals and for disposals where no tax is due.
The capital gain will still need to be entered onto the self-assessment tax return and a potential tax adjustment may be required once the correct rate of tax has been established after a full tax years income has been obtained.
If there is an overpayment of capital gains tax, then this will only be repaid once the tax return is submitted.
Sell the property and complete before 6th April 2020
Consider putting the property into joint names to obtain 2 personal allowances, 2 annual exemptions and potentially reducing the rate of tax. However, you may need to consider stamp duty implications
Consider gifting the property to family members, again you will need to consider stamp duty implications
Make sure you have all the information ready to calculate the gain before the sale is completed, having the original cost, details on improvements to the property and associated legal fees will calculate the gain more accurately a avoid an overpayment
Sell loss making shares and assets before completion as this can be offset against the gain
If you have any questions or queries about Capital Gains Tax then feel free to get in touch via 01788 815 017 or firstname.lastname@example.org