We are all familiar with declaring capital gain tax on residential property via our self-assessment tax returns and paying the capital gains tax on 31 January following the end of the tax year, but this is to change from April 2020.
From this date, if an individual sells a residential property, then a property return must be filed with HMRC within 30 days of the completion date, and any tax due is also payable on that date. A property return is not required if there is no tax payable.
The normal 12-month period is allowed for amending the property return, but only for events that had already occurred at the date the property return was filed. If for any reason you make a capital loss after this date, then you have to claim relief for this loss on your self-assessment tax return, so you may effectively be paying tax which is not actually due, and you cannot claim a repayment of this tax until you file your self-assessment tax return.
As this property gain will also be included on your self-assessment tax return, as well as the property return, then if the self-assessment tax return is subject to an enquiry, then the capital gain potentially is too, so the enquiry window remains open for longer.
The tax paid within 30 days is treated as a capital gains tax payment on account. It is calculated ignoring all other non-residential property capital gains which may arise in the year. Capital losses can be deducted, if they are known at the time.
Individuals need to be aware that these new rules are coming into force, and although they are aimed at the buy to let market, they can catch an individual’s main residence, if for any reason full main residence relief is not available. This would be such things as periods of absence, divorce, periods abroad, etc, and in these circumstances, you may have to calculate the capital gains tax position anyway, to check if the property return is required.
It is a very short window to file the return, so individuals need to ensure their records are up to date so that they can provide their accountant with the information very quickly after the completion date, or penalties will be levied for late filing.
In addition, other changes to capital gains tax from 6 April 2020 will be:
- Reducing the final exempt period of ownership from 18 months to only 9 months, this will be 36 months for disable persons or those moving into a care home;
- Reforming the lettings relief so this is only available when the owner of the property is in shared occupancy with the tenant.
If you are selling a residential property after 6 April 2020 and you are unsure if a capital gains tax liability will arise, you should speak to BHP, or your own accountant, as soon as possible.
