When it comes to selling your main residence (for tax purposes, also known as your Principal Private Residence, or PPR), most people will usually be exempt from any form of Capital Gains Tax (CGT) charge.
However, CGT is likely to be charged on the sale (or any other form of disposal, such as placing in a trust or gifting to a family member) of any second property. In the case of rural properties, PPR Relief also only applies to gardens and grounds up to half a hectare, but does not cover any gains on non-permitted areas, such as a commercial workshop, holiday let, or certain types of agricultural land.
With the current CGT rate of 28% of the chargeable gain, the tax bill can be a sizeable one, and until now the vendor has had a significant period of time to plan the payment. But under changes contained within the Finance Act 2019, that payment period of up to 22 months will be drastically reduced to just 30 days ( from completion date) – potentially a nasty surprise for anyone looking to dispose of a second property.
Under the existing arrangements, if you were to sell a property that doesn’t qualify for PPR Relief in the current 2019/20 tax year, the CGT charge would be payable by 31 January 2021 as part of your annual self-assessment return; this would give you a payment period of anywhere between 10 and 22 months.
New Capital Gains Tax rules
However, the new rules – which take effect from April 2020 – will mean that all Capital Gains Tax will be payable within 30 days of the sale, gift or disposal of the property being completed.
HMRC has explored the best ways of making sure taxpayers are aware of the changes, and have identified that those most like to be ignorant of the new rules are people dealing with ‘one-off’ or very occasional property transactions. While ‘multiple disposal’ customers such as landlords or those with an existing property portfolio are likely to know more about the rules and how they need to meet the new deadlines, one-off customers may have little or no experience of dealing with CGT, and may not be aware of how the Finance Act could affect them.
Vendors will now need to make a special payment on account return to HMRC confirming details of the sale or disposal, and how much they are due to pay; they will need to keep detailed records of any transaction, ensure calculations are accurate, and also take steps to make sure they have the funds to pay the CGT charge within the shortened deadline. If they do fail to pay within the 30 days, they will be liable to fines and interest charges.
To find out more about how the Capital Gains Tax changes could affect you, please contact your usual Price Bailey contact.
This article was written by our Tax Partner, Jay Sanghrajka. If you would like more information on this article, please contact Jay using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.