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Major changes to residential property disposals

Residential property owners disposing of their UK properties after 5 April 2020 will see major changes.  The biggest change will be the reporting requirements.

30 Day Reporting Requirement for Residential Property Disposals

From 5 April 2020 property owners will be required to report the disposal of a UK residential property and pay the estimated capital gains tax liability within 30 days.  Previously property disposals were reported on the tax return by 31 January following the end of the tax year.  This advances the payment of tax by 10 – 22 months (depending upon date of sale).

This applies to the disposal of all residential properties by individuals, trustees and personal representatives unless the following applies;

  • It is an exempt disposal due to Principle Private Residence Relief (Main Home)
  • It is a disposal which is at no gain/no loss (eg. A transfer between husband and wife)

The 30 day period is from the date of completion, not the date that the contracts are exchanged.

A reasonable estimate of the capital gains tax payable will be required which can take into account the annual exemption and losses already incurred in the tax year prior to disposal, but not anticipated capital losses post disposal.  The tax will be reconciled at the end of the tax year when the annual tax return is completed.

If you do not file within 30 days, late filing penalties will apply, similar to those imposed for late tax returns.

  • £100 fixed penalty
  • £10 per day if over 3 months late
  • The higher of 5% or £300 after 6 months late

Principle Private Residence Relief from 5 April 2020

A disposal of a residential property which at some point was occupied as the taxpayers main residence will qualify for principle private residence relief.  The relief currently allows for the exemption of a capital gain for the period of occupation plus the final 18 months.  However, from 5 April 2020, the additional exemption period will reduce to 9 months.

Furthermore, if a property was also let during ownership, there is currently a further exemption (letting relief) which reduces the chargeable gains.  At present, this is, the lower of;

  • The gain relating to the letting period.
  • The gain already exempt under principle private letting relief
  • £40,000

From 5 April 2020, letting relief will no longer be available unless the property is owner occupied at the same time of letting.  These two changes could make a big difference on the capital gains tax payable on the disposal of a property before and after the 5th of April.

If you are thinking of making a disposal in the near future, please get in touch so we can prepare a tax estimate. Email – nicola.brown@four-m.co.uk

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