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Preparing for Capital Gains Tax changes on property sales

If you are a UK resident who is looking to dispose of residential property it may be wise to act now. Otherwise you might be caught out by changes to Capital Gains Tax regulations which come into force in April 2020. Keep reading for more information on the changes and to find out if the regulation changes will affect you.

What are the changes regarding disposing of property?

Most owner-occupiers do not pay capital gains tax when they sell their main home because of a tax relief which exempts the seller from tax in relation to periods when they lived in the property. There is also a “period of grace” which allows for the situation where a homeowner moves into their new home before they have managed to sell the old one. This period is currently 18 months, but will be cut to 9 months from April 2020. This means that, if you don’t sell your previous home within 9 months of moving into your new home, you may have some capital gains tax to pay.

There will also be changes to “letting relief” which is severely restricted from 6 April 2020. This relief currently reduces the capital gains tax payable by a property owner who has lived in a property themselves at some stage and has rented it out at other times. From April 2020, letting relief will only apply if the owner and tenant live in the property at the same time; this will be rare. Withdrawal of this relief could increase the capital gains tax bill on the sale of a property by up to £22,400.

Perhaps the most significant change is to the timing of capital gains tax payments following the sale of a residential property. At the moment, if you dispose of a property, you declare it on your tax form the following year to meet the 31st January deadline. Therefore, there is a delay of between 10 and 22 months after a sale before the tax is payable, depending on when in the tax year the sale takes place. For sales of residential property taking place after 6 April 2020, HMRC must be advised of any taxable gain within 30 days of completion and an estimated tax payment must be made within the same timescale.

For the Revenue, the arrangement has the obvious advantage of bringing money in at an earlier stage. There is a danger, however, that many property owners will be caught unawares, as little has been done to publicise the change.

Considering selling your property now?

Taking all of these changes together, the impact could be significant. For example, consider a house which is sold at a gain of £100,000 after 20 years of ownership. It was the seller’s main home for 8 years, then he moved out and let it for the next 12 years. If the property is sold before 5 April 2020, there would be £225 of tax to pay by 31 January 2021, but if the sale is delayed until after 5 April 2020 when the new rules apply, there could be tax of up to £12,390 payable within 30 days of sale

If you are thinking of selling a property in the near future, the timing could be critical. Please contact us if you think this may affect you so we can advise you on the best options for your circumstances.

Ian Lowry



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