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Changes to CGT on Disposal of Residential Properties

Gary Hughes

Tax Manager
16/01/2020

Changes to Capital Gains Tax on the Disposal of Residential Properties from 6th April 2020

Despite some already quite penal changes to buy-to-let (BTL) property taxation, further tax changes aimed at the BTL sector show no sign of abating. In summary, these are the main changes:

Lettings relief

Where a property has been the only or main residence of the owners in the past, and where a property has been let, each owner can currently claim lettings relief to reduce the potential capital gain.

From 6th April 2020, lettings relief will be restricted to cover only periods in which the owner is also occupying the same property ‘in shared-occupancy’.

Deemed occupation period – last 18 months

Deemed occupation periods are available if the property has been the owners only or main residence for a period of time and they have moved out due to renting, by reason of employment etc.

Currently, Principal Private Residence (PPR) relief is extended to cover the last 18 months of ownership. It was 36 months until April 2014 (but the 36-month period of PPR exemption was retained for owners who move into a care home or who are disabled).

From 6th April 2020, the PPR exemption for the last period of ownership will be reduced to 9 months. However, the 36-month exemption period will be retained for disabled owners or those who live in residential care.

Paying capital gains tax and reporting of property disposals

Currently, if a taxpayer disposes of a property not subject to PPR, any gain is recorded on his or her tax return for the year of disposal. So, for example, if you sold a property on 6th April 2019, the disposal would be recorded on your 2019/20 tax return, due to be filed by 31st January 2021. Payment of any related capital gains tax (CGT) also falls due by the same date, thus there being a significant delay between the disposal date and ultimate payment of CGT.

From 6th April 2020, individuals disposing of residential property which doesn’t qualify for full PPR relief must report the disposal to HMRC within 30 days of completion (despite the critical date for capital gains tax being the unconditional exchange of contracts), including a provisional calculation of the tax due. Any CGT due must also be paid at the same time.

The gain must still be recorded on the tax return for the year of disposal, and any tax over or under provided will be dealt with accordingly.

Conclusion

The loss of lettings relief and the reduction in the final period of deemed occupation can potentially have a significant effect on tax bills.

If you are thinking of selling a property that has previously been your main residence, then you may wish to consider selling before 5th April 2020 to take advantage of the more favourable reliefs.

How Hallidays can help

If you’d like support, please contact our specialist tax experts on 0161 476 8276, email hello@hallidays.co.uk or visit https://www.hallidays.co.uk/services/taxation to learn more about how we can help.

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