30 Days Capital Gains Tax payment on account:
Big news for all who are planning to dispose of their residential property. With 30 days Capital Gains Tax rule selling sooner than later may save you from paying gains tax earlier than expected. Next year April 2020, all individuals, trustees, or personal representatives who dispose of their residential property will now be required to make Capital Gains Tax (CGT) payment on account within 30 days.
Although it failed to feature in the original budget itself, from only draft legislation to now the government, have finally confirmed that CGT payment on account 30 day rule is now going ahead for UK residents disposing of residential properties on or after 6th April 2020. This rule is introduced in the provisions by clause 14 and added in Schedule 2 of the Finance Bill; this also spreads to existing requirements for non-UK residents who dispose of UK land from 6th April 2019.
Capital Gains tax in its current form:
Capital Gains Tax (CGT) is generally payable by the 31st January following the end of the tax year assessment in which the gain arose. For example, if the gain arises on 1st June 2017, the CGT is due by the 31st January 2019.
What’s Changing: 30 days Capital Gains Tax rule:
HMRC has now confirmed that chargeable disposals made on or after 6th April 2020, UK residents will have to make a payment on account of the CGT due and submit a return within 30 days following the disposal. For example, if the gain arises on 1st July 2020, the CGT will now be due on or before 30th July 2020.
What is regarded as the date of the disposal:
This date is the completion of the sale. Sometimes there is a gap between exchange and completion, the chargeable gain date will be on the completion of the asset disposed of.
When calculating this, all losses and annual exemption allowance (currently £11,800) will be taking into consideration before calculating the actual gain and the tax liability. The rate of Capital Gains Tax will be assessed after making a reasonable assessment of taxable income for the year. The percentage rate of Capital Gains Tax for residential property which s currently set at 18% or 28% depending on taxpayers income status. Read full payment window here
30 Day payment on account rule with full PPR (Principal Private Residence) relief:
The new rule of reporting capital gains and payment within 30 days does not apply to those where there is no chargeable gain occurred. For example, if the chargeable gain is fully covered by PPR relief or fully covered within annual exempt allowance. There is no requirement of reporting such gains as there will be no capital gains tax payable.
Further changes in Letting relief claim:
Currently, along with PPR (Principal Private Residence relief), another significant tax reducer relief available is known as Letting relief. It can be up to max £40,000 or equal to PPR relief or gain amount, whichever is lower. Rules around claiming Letting relief is also changing and will only apply to landlords who live at the same property with tenants. Unfortunately, this may not apply to many landlords and therefore may also lose this tax reducer relief currently available in the future.
What happens if I gift my property?
We get asked this question very frequently, and the answer to this is Yes, the same rules apply in this situation as well. For example, if Parents wish to gift their ‘Buy to let’ residential property to their children, then this will be chargeable disposal, and as regular disposal, this will also be subject to Capital gains tax 30 days rule with only exemption to those where no chargeable gain arises.
Get in touch with our expert tax team member who can help you calculate your chargeable gain. Click here to get in touch. Alternatively chat with our Tax adviser through WhatsApp on +447854255735.