This year, on 6 April 2020, HRMC are proposing some changes that could significantly increase the Capital Gains Tax (CGT) paid on the disposal of any residential property.
That, along with a decrease in the time you have to pay CGT, should generate a one-off additional increase in CGT paid to the Government by around £7bn.
Changes in CGT on your main home
If, like the majority of residential sales, you have occupied the property throughout the period of your ownership as your main residence, then there will be no CGT due on the sale.
However, if you did once occupy the property as your main residence, but have since moved out and let the property, or kept the property of any other reason, then these changes may well affect you.
Even getting divorced, separated or working away could see your traditional entitlement to full CGT relief significantly diminished.
Put simply, if any of the above scenarios apply to you, then you will likely face a larger CGT bill if you transfer or sell your property on or after 6 April 2020.
Since 1980 the valuable tax break that is Letting Relief that was applied to any property that was your main residence, allowed any private gain that remained after Private Residence relief, to be further reduced by up to £40,000.
Not only is this £40,000 exempt of CGT, if you qualify, but it is also available to each owner of the property. Meaning that a property could deliver a massive £80,000 CGT exemption for a property owning couple.
The bad news here is that for any disposals made on or after 6 April 2020, HMRC is looking to limit the availability of Letting Relief, by restricting it to those landlords who share occupancy with their tenant. Unfortunately for everyone else, it looks as though letting relief will no longer apply.
If you’ve already moved out, then the clock is ticking
In most cases Final-Period Exemption allows you to have moved out of the disposed of property in the last 18 months and still avoid CGT, even if you now live elsewhere.
However, from 6 April 2020, this will be reduced to just 9 months before CGT becomes applicable.
Those with a disability, or who have moved to a care home, will still be able to claim private residence relief for the last 3 years of ownership.
A decrease in the time to pay
As HMRC take away with one hand, they would also prefer that you paid a little quicker with the other.
As CGT is included in your self-assessment due on 31 January, following the year of the disposal of the property, this means that HMRC can be waiting for up to 10 to 22 months after the date of the sale.
HMRC believe that they far are better placed to look after that lump sum than you are. |
So after 6 April 2020 you’ll have just 30 days from the date of completion to clear any CGT liability. All this will be done via a residential Property return and the tax will be treated as a payment on account of the CGT tax due for that year.
So what can you do? What are the opportunities?
Well obviously the single most important thing you can do is to be aware of the changes coming. So the very fact that you are reading this sentence should provide you with some sense of calm.
Other practical things you may want to consider are:
• Speaking to a knowledgeable financial advisor, who understands these matters
• If you are letting out your old main residence, then workout how much additional tax would be payable if you were to sell after 5 April 2020
• If you have multiple properties and are considering selling or gifting, then consider which properties you should focus upon under the lens of CGT
• Consider disposing of property assets before 5 April 2020, if your tax position suits that choice
• If you individually own a property and you have a spouse or civil partner, then consider transferring ownership into joint names prior to any disposal. This can allow you to take advantage of both of your annual allowances and lower any potential CGT.
A bridge over troubled waters
Although this isn’t the start to the new decade that many private landlords want, there are always actions you can take to mitigate the impact upon your own finances.
So talk to an expert today.
As always, were here to help, whenever you need us. If you do have any further questions regarding the new CGT regulations, then please get in touch with us at Bridgewater Financial Services, where we will be delighted to help guide you through your individual options and strategies.