Those planning to dispose of property need to be aware that there are important tax changes taking effect from 6 April 2020. Those disposing of a property on or after this date will need to factor in new capital gains tax (CGT) rules.
Broadly speaking, private residence relief (PRR) means there is usually no CGT to pay on the sale or disposal of a person’s main or only residence. In order to ‘better focus’ PRR on owner-occupiers, the 2018 Budget announced changes to the final period exemption and lettings relief. Anyone planning a property disposal would be advised to consider their affairs now in the light of these changes.
The final period exemption
Currently, the final period exemption means you are not usually liable to CGT for the last 18 months of ownership, even if you don’t actually live in the property. This relief was intended to provide protection for someone moving to a new main residence when there was difficulty selling the original home. However, from April 2020, the final period exemption will be cut to nine months. The change could create CGT consequences for significantly higher numbers of property transactions. If buying a new property before selling the old, it will be important to try to sell within nine months to avoid a possible CGT bill.
There is an exception for those in, or moving into, care home accommodation, or those with a disability. Provided they or their spouse do not own any other residences there is a final 36-month deemed occupation period, which is not changing.
Currently, lettings relief gives up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was the former main residence at some point in their period of ownership. But, under the new regime, lettings relief will only be available where you jointly share occupation with a tenant. These new rules will apply for disposals from 6 April 2020, regardless of when the period of letting took place, even if before April 2020. This is likely to considerably reduce its scope.
This change needs to be considered in conjunction with other complexities which can arise. Examples include periods of absence from a main residence, or ownership of more than one property.
Reporting the gain and paying the tax
From 6 April 2020, there is also a major change to the deadlines for paying CGT when disposing of a residential property. This may apply when a second home, an inherited property, or a rental property is sold or otherwise disposed of. Individuals, trustees and personal representatives should all be aware of the forthcoming change.
In future there will be a 30-day window after the completion date for the property disposal to file a return, and calculate and make a payment on account of the CGT bill. This changes the current procedure, with payment made as part of the self-assessment cycle, and CGT payable by 31 January of the tax year following the year of disposal. If no payment is due, reporting will not be required. This would be the case if, for example, PRR is available in full.
The change mirrors current obligations of non-UK residents. Since 6 April 2019, non-resident CGT has applied to direct and indirect disposals of UK land or property, whether commercial or residential, with non-resident companies being chargeable to corporation tax. There is a 30-day reporting requirement, even if there is no tax to pay. Where tax is due, it must be paid within 30 days of completion. The charge to CGT on gains from the Annual Tax on Enveloped Dwellings (ATED) has been removed.