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Major Changes to Capital Gains Tax (CGT) Rules

23/01/2020

Major changes to Capital Gains Tax (CGT) rules on sales of residential properties are coming in from the 6th April 2020. Forgetting to prepare for the changes could result in costs and expensive penalty charges from HMRC.

The proposed changes to CGT rules for the sale of residential property (the sale contract date, not the completion sale day) have been covered in a previous blog post. HMRC have said they intend to raise awareness of the changes, but from experience, we know that even though HMRC intend to raise awareness, this is sometimes not enough – so in this blog post we wanted to remind readers of the new CGT rules, given HMRC’s ‘zeal’ for levying ‘Late Filing Penalty Charges’.

Introduction of New CGT Rules

The new CGT rules are to be introduced from the 6th April 2020 and apply to UK residents who own residential property – in the UK or abroad. For now, the filing to HMRC and payment of CGT on the sale of ‘commercial property’ is not affected by the new rules, but we suggest commercial property owners ‘watch this space’.

The CGT rule changes include the 2020/21 tax year and will mean that any CGT liability on the sale of residential property will be required to be formally declared to HMRC, and the CGT paid, up to 21 months earlier than under the current rules.

For more details of the CGT changes for UK residents’ sales after the 5th April 2020, read our previous blog post.

The main CGT rule changes are:  

1. If you sell a residential property in the current tax year to the 5th April 2020, you are required to declare to HMRC the CGT on your 2019/20 tax return and must pay any 2019/20 CGT liabilities by the 31st January 2021.
2. From the 6th April 2020 if you sell any residential property, then you will be required to declare any ‘chargeable gain’ and pay any CGT liability to HMRC within 30 days of the ‘date of completion’ of the sale of the residential property. The new CGT declaration and payment rules for the sales of residential property will apply whether the seller is or is not already registered for Self-Assessment (SA) – but HMRC has said that if you only have the CGT on the sale of the residential property to declare, then you will not have to register for SA. However, if after the end of the relevant tax year you decide to make changes to your ‘provisional’ CGT computation, then you must declare those charges to HMRC.
3. The new CGT rules only apply if a CGT liability arises. The new CGT filing and payments rules will not apply for sales after the 6th April 2020 if the gain is fully covered by a relief (e.g. capital loss or principal private residence relief (PPR) – as below). Also, no early CGT filing is required for sales after the 6th April 2020 if the gain is covered by the CGT annual exemption allowance – which is currently £12,000 for 2019/20.
4. There will be HMRC penalties for errors and failing to meet the new 30 days payment limit. CGT declaration and payments penalties will be similar to those currently charged to non-UK residents – and will be expensive!

Principal Private Residence (PPR) – Your Home

Other CGT changes from the 6th April 2020 include the calculation of any CGT liability on a chargeable capital gain on the sale of your main home – your principal private residence (PPR).

The main changes are that currently the last 18 months of ownership of your PPR is always treated, in effect, as CGT exempt – but as from the 6th April 2020, the above 18-month rule will be reduced to 9 months. This means even more reportable CGT for HMRC, within the 30 day filing deadline period!

These new PPR CGT rules will only impact you if you have ceased to occupy your PPR for more than 9 months in the period before you sell the PPR (e.g. you have moved to a second property while still selling your PPR, or in the case of separating couples – one party moves out before the previous matrimonial property is sold). Remember – it is the sale contract date that is the CGT disposal date.

If you are in the above situation, try and have the PPR’s sale contracts exchanged before the 6th of April 2020.

HMRC CGT Penalty Regime Warning

In view of the new HMRC CGT penalty regime, if you are proposing to sell a residential property wherever located, we strongly recommend that you take professional advice.

We at HaesCooper have the tax expertise to guide you through the complex residential property CGT rules so you are fully aware of what you can claim, to reduce your CGT liability. In addition, we will ensure that you do not fall foul of the HMRC penalties regime and do not miss any statutory time limits for declaring CGT.

With the right professional support and advice from HaesCooper – you will be best placed to plan your future residential property sale(s).