Major changes to the tax regime for gains made from the sale of residential property will take effect from April 2020. They will affect how and when you’re required to report and pay capital gains tax. What’s the full story? Brona MacDougall finds out.
Current CGT deadlines
Currently, capital gains made by individuals are reported through self-assessment. This means, for example, if you sell a property between 6 April 2019 and 5 April 2020 you must declare it on your tax return and pay the tax you owe no later than 31 January 2021. New rules will apply for 2020/21 onwards meaning that the tax payable on certain types of gain will be due up to 21 months sooner. A recent report from HMRC shows that taxpayers likely to be affected by the new rules are not properly aware of the changes.
The new rules apply where tax is payable for gains made from the sale of residential property located inside or outside the UK on or after 6 April 2020. You’ll have just 30 days following completion to submit a provisional calculation of the gain and pay the tax you estimate is due. You’ll still be required to declare the gain on your self-assessment tax returns and pay, by the usual self-assessment deadline, any CGT due over and above your provisional payment.
The 30-day declaration and payment applies whether or not you’re in the self-assessment system. If you aren’t HMRC says it will not require you to register for self-assessment just because you’ve made a capital gain. Instead, after the tax year in which you made a gain ends you’ll be required to review your provisional calculation and make any changes needed.
Estimating your CGT
To work out your provisional CGT bill you’ll need to estimate your taxable income for the year to determine how much CGT is payable at 18% and how much at 28%.
1. You’ll be allowed to reduce the gain liable to tax by capital losses brought forward from earlier years and those made in the same year as the gain up to when you make your provisional calculation.
2. If you intend to sell assets which will make a loss, say shares, consider making the transaction before you make a gain reportable under the 30-day rule. That way you can take account of the loss when working out your provisional payment.
No going back
Once you’ve submitted your provisional calculation and paid the tax you won’t be allowed to reduce it, say because you made a capital loss later in the year, until you submit your self-assessment return or year-end review. There will also be penalties (details aren’t yet known) for errors and for failing to meet the 30-day deadline for reporting a gain and paying the tax.
The new reporting deadline coincides with the cuts in the reliefs for capital gains on the sale of residential property where it was your home. This means there will be more taxpayers caught in the CGT net and so subject to the new 30-day deadline.
Where you make a capital gain from the sale of a residential property large enough to result in a tax liability, you’ll be required to submit a provisional calculation to HMRC within 30 days of completion. You’ll also need to pay the capital gains tax you estimate is due.