New rules relating to Capital Gains Tax reporting requirements in connection with UK property sales come into effect from 6 April 2020. The rules require that HM Revenue & Customs must be notified within 30 days of completion of a sale, otherwise penalties and interest will be due on what is owed. If you are planning to sell a property that you have let or a second home, it would normally need to be reported to HMRC using a self-assessment tax return or using the online “real time” tool for reporting. This means that the tax due needs to be paid by January 31 of the following tax year, which gives sellers between 10 and 22 months after the sale of their property before they need to pay.
Changes have allegedly been made due to HMRC’s concern over how long it took for Capital Gains Tax to be paid. From the 2020/21 tax year, individuals and trustees disposing of a residential property will be required to make a payment on account, much like the rule for self-assessment income tax. The payment will then be due within 30 days. In the 2019/2020 tax year, any capital gains tax due after the completion of a residential property sale isn’t due until January 31, 2021. The individual or trust can make payments on account before that date, but they are not required to pay the full amount until January 2021.
The amount of capital gains tax charged depends on the income tax rate of the payer. If you pay the basic income tax rate, you will pay 18% on residential property (or 10% for other gains) if your taxable income plus your taxable gains, less your tax-free allowance, is within the basic income tax band. You pay 28% on anything over that or 20% for gains from assets other than residential property.
Capital gains tax is when you sell an asset that has increased in value. You may need to file a report and make a payment when you sell:
⦁ a property that you’ve not used as your main home
⦁ a holiday home
⦁ a property which you let out for people to live in
⦁ a property that you’ve inherited and have not used as your main home
The new rules won’t apply if you are selling your only home, however there are changes to the rules for those who are disposing of a rental property that was once their home. Currently, private residence relief for landlords renting out their former homes can claim capital gains tax relief on property sales for up to 18 months after moving out. From April 2020, this will be reduced to nine months. In this situation capital gains tax is only applied to the value that the property went up by in the period when the landlord wasn’t living there.