Sellers Beware – New Rules for Capital Gains Tax on the Sale of Property

Buying and Selling a Business

New Capital Gains Tax (CGT) rules are due to take effect in April 2020. They will have a dramatic impact on those looking to sell or dispose of certain properties in the UK.

CGT is generally payable when you sell or dispose of property that is not your sole or main residence. This would include:

New Rules

The rules, coming into effect in April 2020, bring forward the deadlines for reporting and, more significantly, paying CGT within 30 days from the date of completion.  This marks a significant change to the current regime where CGT is ordinarily paid between 10 and 22 months after the disposal. Which are as part of the individuals’ self-assessment process.

UK resident sellers who are caught by the new rules will be encouraged to seek early advice from their financial advisors. In order that proper arrangements can be made to ensure individuals can meet their tax liability in an efficient manner. Those most affected by the changes will include sellers of second homes and rental properties. The new rules will also call for much closer discussion between sellers who instruct accountants or professional advisors to manage their tax affairs. They will need to be made aware of any disposal much earlier than the current regime requires, to avoid individuals falling foul of the new rules.

In addition to the new CGT reporting and payment rules are the proposed changes to lettings relief. Which  seek to restrict the relief to more confined situations. The change will affect second homeowners who let their property (or part of it) following their own occupation and prior to any sale. In such circumstances the seller is generally entitled to claim Principal Private Residence relief for the period which they occupied the property themselves. Plus the last 18 months of ownership. Lettings relief can also be claimed for those periods when the property was let to a tenant.

6 April 2020

With effect from 6 April 2020, the Government will restrict the ability to claim lettings relief only to owners who share occupation of the property with the tenant at the same time.  The reality is that very few owners will be entitled to claim this relief after the implementation of the restriction.

These changes signify a drastic review of the current system and seek to tighten the screws further. On second homeowners, property investors and private landlords, following the Stamp Duty Land Tax surcharges introduced in 2016.

Sole Homeowners

However, sole homeowners looking to sell their main residence are not entirely without risk. Under the current system a seller is not required to pay CGT where the property being sold is their main residence. Sellers are also permitted to buy a new home before selling their main residence without incurring a CGT liability. Provided their main residence is sold within 18 months of the purchase of the new home.

Under the new rules to be introduced in April 2020, this tax-free window will be halved to just 9 months. If the main residence is not sold within the 9 month grace period the seller will be caught by the new CGT provisions. Any gains on the disposal that result in a CGT liability will need to be reported. Then the CGT will be paid within the 30 day time limit described above.

This will put increasing pressure on property transactions in certain cases. So careful tax planning may be required should a seller find themselves considering this option.

The main point to take away from these changes is closer discussion with your legal and tax advisors prior to any proposed sale. Failure to do so may be a costly mistake to make.

How we can help

Hart Reade Solicitors are a full-service law firm with offices in Eastbourne, Hailsham, Polegate and Meads.  We hold both Lexcel and Conveyancing Quality Accreditations from the Law Society of England and Wales.  To make an appointment with one of our business law Solicitors, please phone our office on 01323 727 321.

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Please note, this article does not constitute legal or tax advice and its content may be subject to modification depending on any changes in the law.