Did you live in your residential property prior to renting it out? If so, you could be affected by the changes to Capital Gains Tax Private Residence and Letting Reliefs if you sell your residential property after 5 April 2020.
These changes could reduce the amount of Capital Gains Tax (CGT) relief available on the sale of a private residence. The changes are:
- Home owners that have, at some time during their ownership, let all or part of their home may not benefit from the full Private Residence Relief, but can benefit from Letting Relief of up to £40,000 (£80,000 for a couple). The relief is not available on a ‘buy to let’ property in which a taxpayer has never lived. From April 2020, Letting Relief will only be available to those property owners who are in shared occupancy with a tenant.
- Currently, if a property has been occupied at any time as an individual’s private residence, for CGT purposes the last 18 months of ownership qualify for Private Residence Relief. This relief applies even if the individual was not living in the property during that last 18 month period. From April 2020, this final exempt period will be reduced from 18 months to 9 months.
- For those who sell their homes and are disabled or moving into long-term residential care currently the last 36 months qualify for Private Residence Relief. There are no proposals to change this extended period of relief for such homeowners.
Planning opportunity
If you are considering selling your rental property, which was previously your main residence, you might benefit from exchanging contracts on the sale on or before 5 April 2020, before the restrictions in reliefs apply. Churchgates can help you to evaluate whether an earlier sale would be advantageous to you.
Changes to when you pay Capital Gains Tax post 6 April 2020 for residential properties
Currently CGT is normally paid between 10 and 22 months after disposal, and usually reported via a self-assessment tax return with any tax payable by 31 January, following the tax year of sale.
From 6 April 2020 any chargeable gain on the disposal of UK residential property must be reported by submitting a return to HMRC within 30 days of completion of the sale. Any CGT arising on the disposal will be payable within the same 30 day window.
Planning opportunity
If you are considering selling a residential property you may wish to consider exchanging contracts on the sale on or before 5 April 2020 to extend the tax payment date to 31 January 2021 and to avoid the completion of the new CGT return.
How can Churchgates help you with your residential property?
- Our Tax team can assist in calculating any income and gains to be disclosed on your self-assessment returns and work alongside your legal team in calculating the gain that will now need to be reported at the time of disposal;
- Our Legal team can help with the conveyancing of any residential property along with any advice and legal documentation required regarding shared ownership of the property;
- Our Financial Planning team can help with arranging your mortgage and any life insurance required.
