Capital Gains Tax is a tax on the profit when you dispose of an asset that’s increased in value. You are taxed on the gain you make and not the amount of money you receive. Disposing of an asset includes selling it, giving it away as a gift, swapping it for something else or getting compensation for it (like an insurance pay-out).
Imminent rule changes affecting Capital Gains Tax when selling residential property could have a significant impact on private landlords. Although it is not only landlords that could be affected, this is likely to have a significant impact on the amount of tax you are due to pay HMRC if you own a second home, a holiday home, if you are a divorcing couple or if you own a property which you didn’t live in for a period. The changes are due to be implemented on 6 April 2020 and the changes are as follows:
30 Day Reporting and Payment Deadline: Under the current rules, capital gains tax (CGT) is reported in an individual’s personal tax return and tax is payable on 31 January following the end of the tax year (5 April) e.g. CGT for a property sold on 6 April 2019 doesn’t have to be paid until 31 January 2021. However, from 6 April 2020 individuals who sell or gift a residential property which is liable to CGT have 30 days to report the disposal to HMRC and any tax due must also be paid within 30 days of completion of the sale.
Potential £40,000 Lettings Relief lost per person: Currently, if you sell a residential property which was at one time your main residence, but has also been rented out, it is possible to deduct ‘letting relief’ up to £40,000 per person from any capital gain. From April 2020 this relief will only be available for those periods where owners lived in shared occupation with their tenants. This relief will therefore no longer be available for the vast majority of disposals.
Reduction in Taxable Gain Due to Final Period of Ownership: If you have lived in the property at any time during ownership, the last 18 months of ownership are treated as qualifying for principal private residence (so this part of the gain in value is exempt from tax). As of 6 April 2020 this tax relief will only be provided for the final 9 months of ownership, therefore halving the relief.
If you think you may have Capital Gains Tax to pay on the disposal of assets you should make sure you keep all documentation relating to the disposal and contact your accountant to make sure it is correctly reported to HMRC.