By Esmée Hardwick-Slack
In the 2018 Budget, former Chancellor Phillip Hammond announced a couple of changes to the capital gains tax (CGT) regime and reliefs available to owners of a residential property which was once their main residence. The changes, which are due to come into effect on 6th April 2020, will have an impact on the CGT liability at the time the property is sold.
Changes to Private Residence Relief
At the moment the final period of exemption or period of deemed occupation is 18 months and this means that if the homeowner sells their property within eighteen months of moving out then they will not be subject to capital gains tax on the disposal of their main home.
From April 2020, this relief will apply to the full period a taxpayer lived in the property as their principal residence plus the final 9 months of occupancy (unless they can claim special circumstances, such as a disability or having to move into care).
Lettings Relief abolished
Lettings relief has been effectively abolished from 6 April 2020. Homeowners can now only claim it when they are sharing the property with the tenant.
Previously, if you were letting your property which you once lived in as your main residence then at the time you came to sell it, it was possible to claim lettings relief. Lettings relief along with principal private residence relief reduced a potential capital gain on the sale of your property.
Lettings relief covered capital gains of up to £40,000 (£80,000 where a property is owned in joint names), however, there are restrictions in place which can cap the actual amount of lettings relief available.
Capital gains tax on account
In 2018, the government also proposed that CGT would be payable “on account” within 30 days of the completion date for all UK residential properties disposed of by a UK resident. This change was due to come into effect on 6 April 2019, but it was delayed until 6 April 2020.
The “on account” description of the tax payment is a misnomer as the full amount of CGT will be payable within 30 days, alongside a new online property disposal return. We understand that it will be possible for HMRC to enquire into the report made online independently of the Self- Assessment tax return.
If there is no gain to report or the gain is covered by exemptions or losses, the taxpayer won’t have to complete a property disposal return.
If there is a taxable gain to report, the capital gains tax must be calculated taking into account the annual exemption for the year and guess at the correct rate of CGT to apply (18% or 28% based on 2019/20 rates).
After the end of the tax year, when the Self-Assessment tax return is completed, the property gain is included. Once the full income, gains and losses for the year are known, the true amount of capital gains tax will be ascertained and any “on account” payment will be deducted. This could result in a repayment of tax paid but HMRC would have had the use of the monies from within 30 days of the sale to when the refund is issued.
If you are thinking of selling a residential property which was once your main home, it is important that you seek advice first. Speak to us about selling your property.