Residential Property Tax Changes

25th February 2020

Capital Gains Tax (CGT)

As of 6th April 2020, Capital Gains Tax (CGT) on property is changing. The likelihood is that this will affect the amount of money you give to HMRC following a property disposal. From this date UK residents who sell a residential property that gives rise to a CGT liability must send a new standalone online return to HMRC and pay the tax due within 30 days of completion of the sale.

This is a change to the current legislation where a CGT liability arises which is reported via the self-assessment tax return. The tax liability is then paid by 31st January following the end of the tax year for which the disposal is made. As of April, this will change. The gain will need to be submitted along with the tax paid to HMRC within 30 days. The tax return will still have the gain reported within it and adjustment can be done at this point. In reality whilst the capital gains tax may be calculated and paid at a rate of 28%, some of the gain may fall within the 18% yet this would not be known until the tax return has been completed & submitted.

Lettings Relief

Currently, CGT relief of up to £40,000 (£80,000 for a couple) is available for those who let out a property that is, or has been, their home.  This enables landlords to claim CGT relief, even if they might not have lived in the property themselves for a long time.

From April 2020, this relief will only apply to landlords who are in shared occupancy with their tenant. The reason for this change in legislation is because of those using the lettings relief for reasons beyond its original intention. HMRC has found that many people are benefitting from it when letting out whole dwellings, that has at some point been their main residence. The intention presumably is to discourage landlords from “flipping” their own properties to avoid paying Capital Gains Tax (CGT). When the changes come into effect for disposals on or after 6 April 2020, it is expected that around 40,000 people each year will be affected.

Private Resident Relief (PRR)

Currently, if a property has been a main residence for the last 18 months of ownership, even if you are not actually living there, this would be treated as the principal private residence period and would therefore be exempt from tax. From 6th April 2020, this period will be reduced from 18 to 9 months.

If you think you may be affected by the changes or simply want more advice please feel free to contact one of our tax professionals here at LJS.

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