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Capital Gains Tax and Residential Property

Significant changes to the Capital Gains Tax (CGT) regime for UK-resident individuals who dispose of UK residential property are to take effect from 6 April 2020.  We have covered the changes that relate specifically to Principal Private Residence (PPR) relief in an earlier article, which can be read here.

A further major change is primarily procedural, but one that could cause problems for the unwary.  Where a liability to CGT arises following the disposal of a residential property, which will not be the case where full PPR relief is due, the tax will have to be paid within 30 days of the completion date.  Failure to report and pay on time will result in HMRC imposing interest and penalties.  Gains reported within 30 days will nevertheless also need to be reported on the Self Assessment tax return for the year of disposal, with credit given for the tax already paid.

This contrasts with the position for tax years up to and including 2019/20, when capital gains are reportable only on Self Assessment returns, with the resulting tax being payable by 31 January following the tax year of disposal.  It will therefore be appreciated that the new rules will often mean that CGT liabilities will be due significantly earlier than in the past.

It should be borne in mind that, although the 30-day deadline is to run from the date of completion, it is the date of exchange that determines when the gain is taxed.  To this end, HMRC has confirmed that disposals where exchange takes place before 6 April 2020 will not need to be reported under the new regime, even if completion takes place after that date.

The above comments are a very brief summary of the main changes, and we would therefore recommend that advice be taken in advance of any transaction.  Indeed, given the need to report gains within such a tight time frame, advice should be sought as early as possible once a disposal is contemplated.

If you would like to discuss the issues involved in more detail, please speak to your usual Saffron contact, or get in touch via info@saffrontax.com.