Significant Changes to how Property Disposals will be Taxed in the UK
From 6 April 2020 there are significant changes to how property disposals will be taxed in the UK.
Be aware that if your house sale has been delayed until after 6 April by lockdown you will unfortunately now be caught by changes to the capital gains tax regime for residential property sales.
These changes affect those who have not lived in the house as their main home for the duration of ownership.
What are the changes?
- Anyone selling a property where Capital Gains Tax (CGT) is due will need to report and pay the CGT within 30 days of completion, rather than with their self-assessment tax return in the following year.
- Subject to a COVID-19 related relaxation of the rules for those selling between 6 April and 30 June 2020 (see our post dated 11 June 2020), sales of property after 6 April must be reported to HMRC and any CGT that is due paid within 30 days. Gifts or transfers into trust or a company have the same filing and payment requirements.
- The final period exemption for Principal Private Residence relief (PPR relief) will reduce from 18 months to 9 months.
PPR relief is the reason that you do not pay tax when you sell your home. Because you may not always be able to sell your home before you buy your new one, the relief is extended to cover any gap in time after you move out of your old home into your new one.
- Lettings relief is to be abolished for all but those in shared occupation.
Currently, if a property qualifies for PPR relief and it has been let at some point, it will automatically qualify for a further tax relief – Lettings Relief. This relief can be very valuable, being calculated at the lower of:
- The gain arising in the let period
- The gain arising in the PPR period
- £40,000
The relief is available to each individual owner, so for jointly owned property, the maximum relief could be as much as £80,000.
From 6 April 2020, this relief will cease to be available to most people – only those who are in shared occupation with their tenant will be able to claim it.
How will this affect you?
The change in payment date is really only a timing issue, and, providing you meet the deadline, you will not pay any more tax than you would do if you sold the property before 6 April 2020.
However, the changes in PPR and lettings relief are likely to have more of an impact and will ultimately lead to more tax being payable when your former home is sold, if you have not occupied the property for the entire period of ownership.
If you have any questions about the potential CGT costs of selling your property, please call or email Alison Asher.
About the author
Alison Asher