CHANGES TO CAPITAL TAX GAINS

From the 6th of April 2020, there will be some changes to capital tax gains. To make sense of the upcoming adjustments, we will show you how these changes work in action:

Letting Relief: £40,000 Potential Tax Relief Lost

Current Rules

Capital gains tax relief of up to £40,000 (£80,00 per couple) is available if a Landlord sells their UK residential property which at some point was their main residence. but has been rented out at some point.

 

From 06 April 2020

Lettings relief will only be available for those Landlords living in the property at the same time as renting it out. This applies to all disposals made after 6 April 2020.

 

Final Period of Ownership Exemption Changes

Current Rules

The final period exemption currently means any gains attributable to the last 18 months of ownership are exempt from tax.

 

From 06 April 2020

The relief will only apply to the last 9 months of ownership of the property.

Changes to reporting and payment of gains on the sale of UK Residential Property

Current Rules

Any gains on the disposal of UK residential Property by a UK resident taxpayer are reported on the individual’s personal tax return and any liability is payable 31 January following the end of tax year in which the gain arose.

 

From 06 April 2020

When a UK resident taxpayer disposes of a UK residential Property the liability must be reported and paid within 30 days of the completion date using HMRC’s online services account.
The gains will also be required to be disclosed on the individuals personal tax return and any under or over payment of tax will be dealt with then.

What does this mean?

Using a simple example:

  • Mr Spector owns a residential property which he acquired for £165,000.
  • Mr Spector lived in the property for 3 out of the 13 years of ownership and spent £15,000 on improvements.
  • The property was rented out for 10 years. The property is to be sold and has a market value of £500,000.
  Pre 06/04/2020   Post 06/04/2020
  £   £
Proceeds 500,000   500,000
Less:      
Cost (165,000)   (165,000)
Improvements (15,000)   (15,000)
Gain 320,000   320,000
Period of main residence (73,846)   (73,846)
Final Period of ownership (36,923)   (18,461)
Letting Relief (40,000)  
Chargeable Gain 169,231   227,693
CGT due @ 28% 47,345   63,754
Tax payable by 31/01/2021   30 days following completion date

 

This demonstrates an increased tax liability of £16,409 for Mr Smith following the changes.

 

Our experienced tax team are available to advise on all aspects of property tax, whether residential or commercial. Should you wish to discuss the impact of this matter or any other tax issues, please get in touch.