From 6 April 2020 there is a major change in the reporting and payment of Capital Gains Tax (CGT) on residential property disposals. From that date, it will be necessary to report the disposal of the property within 30 days of completion of the disposal and pay CGT on account to HMRC.
This will be a significant acceleration of the payment date as CGT is currently payable with income tax on 31 January following the end of the tax year. Hence, where completion of a property disposal takes place on 1 April 2020 CGT will be due 31 January 2021. If however completion were delayed to 1 May 2020, CGT would need to be paid on 31 May 2020.
Note that the new 30 day reporting and payment obligation will not apply where no tax is payable such as the disposal of the taxpayers private residence.
If the draft legislation issued for consultation last year is enacted in the next Finance Act there will be important changes to private residence relief for disposals after 5 April 2020.
Firstly, the exemption for the final period of ownership will be reduced from 18 months to 9 months. This applies where a former main residence is disposed of and is intended to give relief where the owner has moved to another main residence until the former residence is sold i.e. “bridging”. Note that for many years this additional allowance was 36 months that led to a tax planning strategy referred to as “second home flipping” which HMRC are seeking to counteract.
The second change will be the abolition of letting relief except for situations where the taxpayer lives with the tenant. This generous relief currently provides an exemption of up to £40,000 per owner where the former main residence is rented out.
As a result of these two proposed changes you might want to consider disposing of a property before 6 April 2020 if you were planning to take advantage of these CGT reliefs.
Rob explains more about CGT in his video below: