Celia Laverick, of accountants and tax advisers Jacobs Allen, explains some important changes to the Capital Gains Tax system
Are you thinking of selling or gifting a property you own that’s been used other than as your main residence? If so, you will need to understand the changes to the Capital Gains Tax (CGT) system which will be introduced from 6 April 2020.
Simply put, CGT is charged on the difference between the selling price and the amount you paid for the property with relief for any period you lived in it, less an annual exempt amount.
It can get more complicated but that’s not the focus of these changes. Making a gain of tens of thousands of pounds is not unusual.
CGT on residential property gains is charged at 18%, or 28% if you’re a higher rate taxpayer. In the past you have had until 31 January following the end of the tax year of sale to pay the tax, details being recorded on an annual tax return. This meant that if a property was sold in say May 2018, reporting this and paying the CGT wasn’t due until January 2020.
From 6 April 2020 this changes. There is a new “UK Land Tax return” to submit unless there’s no gain, or the gain is covered by the annual exemption or covered by a relief such as the “Principal Private Residence Relief”.
The Land Tax return speeds up the payment of CGT because it and the estimated tax due to be paid, must be submitted within 30 days of the completion date of the disposal.
The tax amount is estimated because it can be unclear what amount is charged at the higher rate if you are a potential higher rate taxpayer and accurately predicting the total income received in that tax year won’t always be easy. Also, all capital gains for a tax year are taxed together and on an annual calculation any losses will be set against gains so some of the gain might not be taxable. After the end of a tax year, the tax return for the year is submitted with an accurate calculation of CGT due and adjustments for any over or underpayments.
For example (and ignoring the annual exemption), suppose you are a higher rate taxpayer and you sell two houses in 2020, in May you make a gain of £50,000 and pay tax at 28% (£14,000) in June. In November you sell a house which has flooded and make a loss of £50,000. Overall no GCT is due for the year, but you won’t be able to get a refund of the £14,000 paid until you file your tax return for 2020/21 sometime after 06/04/2021. Any previous loss can be set against the first gain, so keep a good record of all asset disposals.
So we’re moving from a system where HMRC waits for everything to be settled before expecting to be paid to one where they want paying up front – but will refund once things are settled, if required.
-- Celia Laverick is Client Manager at Jacobs Allen Chartered Accountants, Bury St Edmunds
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