Despite the ongoing coronavirus pandemic, which is causing such destruction and disruption to all our lives, new tax legislation is still being introduced which landlords and property investors must adhere to.
The changes to Capital Gains Tax (CGT) might have gone under the radar when compared to other, more high-profile tax changes of recent years – such as the extra 3% stamp duty surcharge and the phasing out of mortgage interest tax relief – but they are just as important and arguably more wide-ranging and transformative.
As of Monday 6 April 2020, deadline changes to CGT reporting and payments for property came into effect.
If a UK resident now sells a residential property in this country and doesn’t qualify for full Private Residence Relief, they have 30 days to tell HMRC and pay any money owed. For some, it can be done without having to register for Self Assessment.
HMRC has launched a new online service to help make it easier to report and pay any money owed.
In addition to this, there are changes for non-UK residents selling both residential and non-residential property in Britain. Non-UK residents will still be required to tell HMRC within 30 days whether there is tax to pay or not and will no longer to be able to defer payment via their Self Assessment tax return.
Owners may need to make a CGT report and a payment when, for example, they sell or otherwise dispose of:
a property that they’ve not used as their main home throughout their ownership
a holiday or second home
a property which they let out for people to live in
a property that they’ve inherited and have not used as their main home
However, a UK resident won’t have to make a CGT report and make a payment when:
a legally binding contract for the sale was made before 6 April 2020
they meet the criteria for full Private Residence Relief
the gift was made to a spouse or civil partner
the gains (including any other chargeable residential property gains in the same tax year) is within their tax-free allowance (called the Annual Exempt Amount)
they sold the property for a loss
the property is outside the UK
You can find further advice and guidance available at gov.uk.
How did the changes come about?
The changes to CGT were first announced at the 2015 Autumn Statement, but the Budget 2017 announced the deferral of its introduction until April 2020. A further technical consultation was conducted between April 11 2018 and June 6 2018.
According to the official guidance, a capital gain can arise when a property is disposed of. A disposal will typically be where the property is sold by the owner, but it also applies where a property is inherited and then disposed of, or where a property is gifted.
The obligation for those selling a home where CGT is payable to pay an estimate of the tax within 30 days of the sale completing is a huge reduction from the previous grace period of between 10 and 22 months.
Lettings relief - which enables landlords to claim tax relief when letting a property in which they used to live – has also now been changed and will only apply for any period in which the owner has occupied the property at the same time as tenants.
Private Residence Relief, meanwhile - which is provided to landlords selling a property they have previously used as their main residence – has now been cut from 18 months down to nine months.
“These significant and complex CGT changes are set to affect many landlords who are looking to sell properties in the near future … [but] they have arguably gone under the radar, receiving less coverage than other industry issues,” Neil Cobbold, chief sales officer at PropTech firm PayProp, said.
“Most landlords selling properties after will need to seek expert tax advice when paying their CGT bill,” he added. “It could therefore be beneficial for agencies to have a partnership with a professional tax expert in place, so that landlords looking for advice can be referred to a trusted source quickly and efficiently.”
In light of the current situation, which is causing job losses, loss of income and other variables, anyone experiencing financial difficulties at this time - who cannot pay their tax bill - can find more information about the help available on the gov.uk page for those who are facing problems in paying HMRC.
This article is also useful as it goes into more detail about how the CGT changes work in practice.
If unsure, landlords and investors are advised to seek expert tax advice to ensure they aren’t breaking any rules with regards to these new changes.