Property Capital Gains Tax - Upcoming Changes in 2020

*Please note the information in this article may be out of date

Everything you wanted to know, but were afraid to ask

You’re selling your house in the summer you say?
You will have Capital Gains Tax to pay on this sale?
You think you can just report that on your tax return and that’s the job done?
You think you can just pay the tax on 31^st January?
You think the final 18 months period is exempt from Capital Gains Tax?
You think you are entitled to Lettings Relief?
Come on now, this is the UK Government.  They just love to rip up the rule book every now and again!

A famous Limerick poet once said:

There was a young man called George Osborne,
Whose tax changes were met with scorn,
Hit those landlords encumbered,
The relief days are numbered,
Our exemptions from April we’ll mourn.

Actually, I just made that limerick up as you can probably tell from its poor standard, but anyway, on with the feature….

There are big changes coming up, well from 6 April 2020 onwards to be precise, and the changes will have a big impact on many landlords selling their buy-to-let properties.  These capital gains tax changes affect residential property only.

So, going back to the first question above, what exactly will you have to do if you sell a property in the summer?  Or being more precise, what will you have to do if you sell a property after 5^th April 2020?

Well, the first question is, are your capital gains less than the annual exempt amount, and are the proceeds on sale less than 4 times the annual exempt amount which is £12,000 in the 2019/20 tax year (at the time of writing, the 2020/21 annual exempt amount has yet to be confirmed)?  If you can answer yes to both questions, then lucky you, you get off scot-free!

But for a lot of landlords, the above will not be the case.

If your gains do exceed the annual exempt amount, then from April 2020:

• You must report the Capital Gain using HMRC’s real time service, within 30 days.
• You must pay any Capital Gains Tax arising, also within 30 days.

So, whereas in the good old days, Capital Gains Tax could theoretically be paid any time between 10 and 22 months after the sale (depending on the date of exchange), this has now dropped to just 30 days.  So, the Government will be rubbing their hands at the prospect of receiving your tax nice and early now.

Is that all?  No, don’t be silly!

If you fall under self assessment, then you also need to report the Capital Gain on your tax return.  If there is any overpayment or underpayment of tax, then this would be resolved at that point.  So, bear in mind, that if you have overpaid tax via your 30 day return, then the refund would not be paid until shortly after you have filed your tax return with HM Revenue & Customs.

If you do not fall under self assessment, then it is just the 30 day return and payment required.

Are you a tax geek?  Yep, me too.  Read all about it in detail here and give yourself a great night’s sleep: UK Legislation

In particular, note in the above legislation who these changes refer to, I quote:

This Schedule applies for the purposes of capital gains tax to—

(a)any direct or indirect disposal of UK land which meets the non-residence condition (whether or not a gain accrues) and which is made on or after 6 April 2019, and

(b)any other direct disposal of UK land on which a residential property gain accrues and which is made on or after 6 April 2020,

That leads us nicely on to one additional point to make here.  It is worth highlighting that whilst this blog feature is aimed at UK residents, non-residents will continue to be required to report and pay Capital Gains Tax (CGT) within 30 days as well.

There are oddities within the rules that are worth pointing out too.  We mention the 30 day rule, but when does the ticking clock begin?  Well, confusingly, whilst the tax point for CGT is the date of exchange, the 30 day rule with regards the real-time return and payment, is actually from the completion date.

HM Revenue & Customs refer to the tax paid within 30 days as “notional,” and somewhat akin to a payment on account, if these apply to you on your tax returns.  Of course, you will have to report each gain, so if you sell a property in May 2020, and August 2020, with each attracting a capital gain, then a separate return and payment will be required for each, again, within 30 days of the completion date.  As such, you will likely need to consider previous returns when calculating CGT bills within the same tax year.  Worth pointing out too, that you may of course offset any available capital losses against your capital gains.  These “notional,” or interim tax payments, will then be somewhat finalised when you complete your self assessment tax return.

What else should I know?

Let’s go back to our original list of questions at the start of this feature.  There are two further big changes which will come into force on 6 April 2020.

Final Period Exemption – As we have explored in depth in our previous blogs, at present, those entitled to this relief can treat the last 18 months of ownership as being exempt from Capital Gains Tax.   From 6 April 2020, this is being reduced to 9 months.  Not good, especially considering it used to be 36 months not all that long ago!  It is worth pointing out that the 36 month rule can still apply in certain circumstances, such as for those in a care home.

Lettings Relief – Again, as we have explored in depth in our previous blogs, at present, those landlords who sell a rented property, which was once their main residence, could be entitled to lettings relief, worth up to £40,000 per owner.  This is changing too from 6 April 2020.  Well I say changing, but actually, going, is probably the better phrase.  No reduction, no phasing out, just a simple goodbye, that’s your lot. Gone!  Though there may be a very small number of landlords who could still benefit, such as in the unlikely event you let the property whilst also living in it at the exact same time.  Other than that, the relief will be gone!

What can you do?

Well, the first obvious answer if you stand to lose a lot of money with these changes, is sell up, now, and fast! Or this may accelerate your Inheritance planning. Time is running out.  Though this may not be entirely practical given the fact that at the time of writing, there is just 8 weeks until the changes come into force.  Of course, there may be other avenues to explore, such as married couples putting property into joint names to maximise your exemptions (although take care with Stamp Duty Land Tax if you have a mortgage).  There may be further options, but this is beyond the scope of this article, and is really something for you to discuss with property tax advisors, such as ourselves, so that a suitable strategy can be devised.

As with all areas of tax, there is no one-size-fits-all solution.  It is very much a case of looking at each individuals’ circumstances, ascertaining the most tax efficient route forward, and making the right decisions for the right reasons.