From 6th April 2020, anyone selling a residential property in the UK will have to comply with new regulations governing the way Capital Gains Tax (CGT) is administrated.
These changes will drastically reduce the timeframe in which any CGT arising from a sale must be reported and paid.
Among those impacted by the new legislation when they come to sell will be buy-to-let landlords, owners of holiday homes, and anyone living in a property that is not – or has not always been their permanent private residence.
If you own a property on which you’ll have to pay CGT when you sell, planning the timing of a sale is now more important than ever. And if you’re currently in the process of selling such a property, you might want to consider speeding things up so that you can complete before the new legislation comes into effect.
As things stand right now, when you dispose of a residential property, you’re required to report any CGT liability on your next tax return. So, if for example, you were to complete a sale in March 2020, under the current rules, you’d need to report details of the transaction and any CGT liability on your 2020-21 tax return. In effect, this would give you until 31st January 2022 to settle your tax bill – almost two years.
But from the beginning of the new tax year, the government is going to be far less generous regarding the time it allows for the reporting and paying of CGT.
If you sell a residential property after 6th April 2020, you’ll have to report the sale to HMRC within 30 days by completing a Residential Property Return. You’ll have to complete a return whether CGT is due or not – and If there is CGT to pay, this will need to be settled within the same 30-day window.
What should you do?
The introduction of the new 30-day reporting and payment rule is a big change to the administration of CGT. Anyone disposing of a property on which CGT is due after April 2020 will need to make certain they’re fully prepared – both from an administrative and a financial perspective.
With just 30 days to file a Residential Property Return, sellers will need to make sure they have access to all the necessary documents and paperwork, so they’re ready to submit their return immediately the transaction is completed.
Financially, the requirement to pay any CGT due within the same 30-day time frame could have serious implications for a seller’s cash flow, and this will need to be factored into any transaction.
If you’re already in the process of selling
While these changes shouldn’t push you into disposing of a property before you’d planned to, you might want to consider your position if you’re part-way through making a sale right now.
If it’s possible to do so, it makes financial sense to try to complete the transaction before the end of the current tax year on 5th April 2020. Doing so will take away administrative pressures by extending the reporting deadline and will help your cash flow position by giving you more time to pay your CGT bill.
When you’re planning a future sale
As mentioned earlier, these changes shouldn’t impact the long-term plans you have for any residential properties you own, but they will have significant implications when you do eventually come to make a sale.
Timing a future sale will require careful consideration so that any impact on your cash flow is minimised, and so that you can build in time to prepare and file your return within the 30-day deadline.
What’s Best for You? Inca Can Help You Decide!
Are you concerned about how the changes to the way HMRC will be administrating CGT from April will affect you? We can help you to decide what’s best and how you should respond.
If you have a sale that’s already going through – or you are planning to begin a sale imminently, it almost certainly makes sense to try and complete the process before the end of March. But if you are considering selling a property after the new rule comes into effect, Inca can help you to anticipate the implications and plan disposals so that the impact to your time and your finances are kept to a minimum.