Capital Gains Tax Changes From 6 April 2020

What are the current rules?

The date of exchange of contract fixes the tax year in which the sale is taxed.

Self-assessment taxpayers have until 31 January following the tax year to file their online return and pay their tax.

Example of rules

Date of exchange: 30 June 2019

Tax year: 2019/20 (ending 5 April 2020)

Date for filing and payment of tax: 31 January 2021

If someone makes a sale that has a capital gains tax (CGT) liability and they do not complete a self-assessment tax return, they have to register to do so by 5 October following the year of assessment.

Non-UK resident individuals, personal representatives, trustees and funds are subject to CGT if the ‘person’ is non-resident at the time of the sale and the disposal is of UK residential or non-residential property. They have to make a non-resident CGT return to HMRC and pay any tax due within 30 days of completion.

What is changing from 6 April 2020?

UK residents disposing of UK residential property will have to:

 

• Report the CGT liability to HMRC;
• Pay any tax due;
• within 30 days of the completion date following disposal.

In addition the final period of ownership main residence exemption is reducing from 18 months to 9 months.

Furthermore, the exemption for periods of letting domestic property, where at some time in the taxpayers ownership had been their main residence, is being withdrawn completely.  This was known as ‘Lettings Relief’ and could exempt up to £40,000 of the gain.

The rules for non-UK residents have remained the same.

The new reporting facility

HMRC are introducing a new online service.

This replaces the existing online service for non-UK resident taxpayers.

It will have to be used by all persons with a CGT liability following the sale of UK residential property.

For ‘one-off’ property disposals, taxpayers will use this new service to report and pay their CGT.  They will not have to register for self-assessment.

Individuals within self-assessment will have to report the gain using the new service and complete a self-assessment tax return. 

The new rules apply to individuals, personal representatives and trustees, but not companies. Companies will continue to report these gains through the Corporation Tax regime.

When does it apply?

The date of exchange still fixes the tax year in which the disposal is taxed.  

Any properties that are completed after 5 April 2020, but where exchange of contracts has taken place before will be subject to the old rules.

If exchange of contracts takes place after 5 April 2020, the new rules will apply and the completion date will determine the start date of the 30 day period for reporting and paying the tax.

When is a tax liability likely to arise and when is a report required?

If the property has been the taxpayer’s main residence throughout the period of ownership the whole gain will be exempt and no reporting is required.

If a taxpayer inherits a house or has a buy-to-let, there may well be a gain that needs reporting. If there is no gain no report is required.

If the gain is below the CGT annual exemption (£12,300 for 2020/21) no report is required.

If the taxpayer has losses brought forward from previous years, or makes a loss in the current year before the gain on the sale of the residential property, these losses can be used to reduce the gain and if no tax is due no report is required.

If there has been any mixed use of the property, an appropriate adjustment must be made on a reasonable basis according to the facts.

New digital service

The taxpayer will need to set up a CGT account and, as agent, we can access the service on a taxpayers behalf when the CGT account reference number is obtained.

The additional information which will be required in order to submit the online return under the new digital service is as follows:

 

• Property addess incuding postcode
• Date property acquired
• Date contracts were exchanged
• Completion date
• Cost of property when acquired
• Disposal proceeds
• Other related costs
• Details of tax reliefs, allowances or exemptions applicable to the seller

What will the CGT liability be?

Where a CGT liability is due, a payment on account in respect of the disposal should be made within 30 days of the completion date. 

The CGT rate to use will be either 18% or 28% where gains exceed the basic rate band. A reasonable estimate of taxable income for the tax year must be made in order to determine the amount of the basic rate band remaining (if any).

Where it is not possible to calculate the liability precisely as not all of the information is available yet, the amount to pay should be the best estimate based on the information available at the time.

When the self-assessment tax return is completed, the gain must still be declared with CGT liability calculated in the usual manner. The overall tax liability will then be adjusted to take into account any payments already made via the new reporting service during the tax year.

Can the return be amended?

Should the gain reported or the tax paid turn out to be incorrect, the CGT return may be amended within 12 months from the due date, provided the adjustment relates to matters incurred prior to the completion date.

Where the adjustment relates to matters after the completion date, the position should be corrected via the self-assessment tax return. This includes if a capital loss is made on non-property items subsequent to the completion date.

Where a further disposal of property is made generating a loss, although a CGT return is not required, it can be made to reflect the earlier payment rather than wait to report the loss via self-assessment.

The CGT return cannot be amended once the self-assessment tax return has been filed.

Penalties?

Failure to comply with the new reporting and payment requirements will incur penalties.

HMRC may also charge penalties for inaccuracies although this will depend on the behaviour of the taxpayer. It is hoped that HMRC will operate a light tough approach on this as long as the taxpayer could demonstrate the position taken was reasonable at the time.

 

What Next?

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