Residential property sellers face more tax changes
Changes to the capital gains tax regime on the disposal of residential property could increase your tax liability and reduce the time you have available to pay it.
Sales of residential property that complete on or after 6 April 2020 will be affected, so if you are considering a disposal, it’s best to plan now to avoid being caught out.
Less time to pay the tax due
UK residents selling residential property anywhere in the world are liable to pay capital gains tax (CGT) on the difference between the purchase price and the sale price, if no exemptions or reliefs apply.
Currently, CGT is due on 31 January in the tax year following the sale. This means sellers can have many months to pay the tax on the gain. So, for example, if you sell your property in June 2019, the CGT will not be due until 31 January 2021.
For properties sold on or after 6 April 2020, sellers will have much less time to pay the CGT due on the sale. From that date, any CGT due must be paid within 30 days of completion of the disposal. This means you will need to complete and submit the return quickly when the sale goes through to avoid penalties.
Selling your home – principle private residence relief
Selling a residential property that you have occupied as your main residence during the whole time you have owned it is free of CGT. This is known as ‘principle private residence’ relief (PPR relief).
Currently sellers have an additional 18 months after leaving the property to sell it and still claim PPR relief. This applies even if you are claiming main residence relief on another property at the same time. This final exempt period will reduce from 18 months to 9 months for sales made on or after 6 April 2020.
No changes will be made to the exempt period for people with disabilities or those in care homes. They will continue to benefit from 36 months of final exemption.
Selling your own home – lettings relief
If you rent out all or part of a dwelling that is – or has been – your main home, the tax position when you dispose of it is a little more complicated.
Currently, PPR relief can be claimed for the years you were resident in the dwelling plus the final 18 months of ownership. For the years where the property (or a part of it) has been rented, lettings relief may be available.
Lettings relief allows for up to £40,000 to be offset against the gain. Married couples and civil partners could benefit from up to £80,000 of relief, if you are in joint ownership of the property and have occupied it as your main residence.
When the rules are updated in April 2020, only properties where the owner is in ‘shared occupancy’ with the tenant throughout the period of letting will be able to claim lettings relief. Where lettings relief is no longer available, there could be a significant CGT liability on the sale of a property.
If you are thinking of selling your main residence, it is worth planning ahead. Depending on your particular circumstances, you may pay less tax and have longer to pay it if you complete the sale before the rules change in April 2020.
For help and advice on tax-efficient disposals of residential property, get in touch with Paula Jeffs.