With COVID-19 creating much uncertainty up and down the country, one thing we can be certain of is that 6 April 2020 heralds the start of a new tax year. Here, we focus on the capital gains tax (CGT) changes relating to the sale or disposal of residential property within the UK.
Readers should note that different rules and tax rates apply to the sale/disposal of assets other than property – this falls outside the scope of this article.
What are the old CGT tax rules relating to UK property sales?
Up until 5 April 2020, taxpayers had until the date of their next self-assessment tax deadline to declare any CGT gains which were over and above their annual exemption and to pay the tax due. This included any gains accrued as a result of the sale/disposal of residential property.
What are the new CGT tax rules relating to UK property sales?
As from 6 April 2020 anyone who makes a taxable gain when selling residential property will have to account to HMRC within 30 days of completion of the sale/disposal – this means not only submitting a Return but also accounting for any tax due.
HMRC have launched an online service to allow individuals to report and pay the CGT owed, which can be accessed through HMRC’s Government Gateway portal.
As CGT rates differ depending on the income tax band of the taxpayer, the income band and tax rate may need to be estimated for the tax year so that the CGT can be calculated and paid. As readers may already know, basic-rate taxpayers pay 18% on gains, whilst higher-rate and additional-rate taxpayers pay 28%.
The tax paid within 30 days of the sale/disposal of the property is essentially a payment on account of the CGT due for that year. This means that such payments are interim payments, with the final calculation of CGT for any particular tax year being assessed in the usual way through the self-assessment tax Return. The sale/disposal of the property will still need to be included within the end-of-year self-assessment, alongside any other capital gains or losses. It will then be a case of reconciling any further tax due – or overpayment – with HMRC at that time.
Failure to submit a Return and pay the tax due within 30 days of completion may result in HMRC issuing penalties and – potentially – charging interest on sum owed.
Given such sanctions, anyone who is concerned that their residential property transaction may result in a CGT liability should obtain legal and tax advice prior to exchange and completion, so as to ensure they are able to comply with HMRC’s 30-day accounting deadline.
What is my annual allowance for CGT in 2020/2021?
The new tax year has seen CGT allowances increase from £12,000 to £12,300 for individuals and those acting as personal representatives, and from £6,000 to £6,150 for trustees of settlements.
It should be noted that these allowances cover the sale/disposals of all types of assets, and is not limited to solely property transactions.
If you have any queries regarding this article then please do not hesitate to contact the Wills, Estates and Powers of Attorney Team and/or Residential Property Team on 01603-610911 or email us here.
Note: The content of this article is for general information only and does not constitute legal advice. Specific legal advice should be taken in any specific circumstance.