Changes to Capital Gains Tax on residential property sales

Thinking of selling a residential property, but just haven’t got around to it yet? There are changes around the corner to the Capital Gains Tax rules that may encourage you to sell sooner rather than later.

Acceleration of Capital Gains Tax settlement

Specified in the Finance Act 2019 was a change that would accelerate the payment of Capital Gains Tax on the sale of residential properties.

Under current legislation, a self-assessment taxpayer could sell a residential property reporting any gain arising in their tax return for the tax year when the property was sold and pay the associated liability by 31 January following the end of that tax year.

The revised legislation, which comes into effect from 6 April 2020, would require the taxpayer to report the gain from a residential property sale and pay an estimate of the tax liability within 30 days of the completion date of the sale; this not only means that the payment would need to be made up to 22 months earlier than it would have been previously, but it could increase the liability initially paid as the estimate does not necessarily take into account other capital losses arising in the same tax year.

Given these changes, it is more important than ever to keep your accountants in the loop when you are considering disposing of assets.

Lettings relief and PPR relief

Unfortunately, there is more bad news; although the legislation has not yet been finalised, there is draft legislation in respect of limiting the amount of relief to chargeable gains a taxpayer can obtain in respect of lettings relief and PPR (Principal Private Residence) relief from 6 April 2020.

Where previously a taxpayer had let their main residence, then up to £40k of chargeable gain arising during the let period could be offset by lettings relief; for a sale from 6 April 2020 this can only be applied if the taxpayer was in residence at the same time as the tenant.  This is likely to render the benefit of lettings relief obsolete in the majority of cases.

Regarding the proposed PPR restriction, currently PPR relief is available for the period when the taxpayer is in occupation of their main residence and also for the last 18 months of ownership, whether they are residing there or not, this is deemed occupation. However, from 6 April 2020 this deemed occupation period decreases to only 9 months.

The adage says, “do not let the tax tail wag the dog”, however, it is clear that the ensuing changes would certainly have cashflow implications and could result in an overall increase in tax liability if a residential property is sold from 6 April 2020 onwards.  As ever, being forewarned is to be forearmed, seeking advice in advance of any disposals will help to prevent nasty surprises.