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Countdown to changes to Capital Gains Tax

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Significant changes are being introduced in April 2020 for disposals of residential property.

Currently if you sell a property, any capital gains tax that is payable is due by 31 January following the end of the tax year in which you disposed of the property, giving you up to 22 months until the tax is due.

For disposals after 6 April 2020, a capital gains tax return will be required within 30 days of the disposal completion, along with a payment on account.

The self-assessed calculation of the amount payable on account can take into consideration any unused losses and the person’s annual exempt amount. As there is a basic and higher rate of capital gains tax, individuals will also need to estimate the amount of taxable income that they may have for the year.

HMRC will be able to raise enquiries into the return separately from self-assessment tax returns. Where capital losses arise after the gain has been returned, this may reduce the amount of tax due. Losses may be claimable immediately or as part of the self-assessment reconciliation process after the end of the tax year.

Capital Gain Tax is not usually payable on your main home as Principal Private Residence Relief will apply and HMRC have confirmed that no return is required if the relief fully applies.

However, there are a couple of changes to Principal Private Residence Relief which are also coming into force for disposals after 6 April 2020 which may mean that some tax is due on the disposal of your main home.

Lettings Relief currently applies such that if you are letting a property which was once your main home, the gain can be reduced by up to £40k (or £80k if owned jointly). This relief is being restricted such that it will only apply if you are letting it out on a shared occupancy basis, ie you are still living there.

In addition, the final period exemption is also being shortened. Currently, you can move out of your home but still be treated as if you live in it for the purposes of the PPR Relief for the final 18 months. This period is being shortened to 9 months.

In addition, PPR Relief will only apply to your home and generally a permitted grounds area of up to 0.5 hectare. If you have larger grounds than this, PPR relief may not wholly apply to your gain and some tax will be due.

Whilst commercial factors are likely to outweigh tax factors, if you are planning a sale of residential property in the next few years, you may wish to consider whether the changes will affect you and consider accelerating the sale before the changes come into force.

BHP Chartered Accountants have a team of specialist advisors who advise property owners on all aspects of property tax. If you would like to discuss the above or any other property related query please get in touch.