Coming into effect from April 2020, HMRC’s new rules mean that the owners of residential properties, including buy-to-let and second homes will need to report and pay any capital gains tax liability to HMRC within 30 days of the disposal.
Why are HRMC changing when capital gains tax is collected?
Under the current legislation, capital gains tax on residential property must be declared via self-assessment tax return forms. The capital gains tax must then be paid to HMRC by 31 January following the end of the tax year, giving the individuals or trusts disposing of the residential property between 10 and 22 months to complete the payment.
As a result, HMRC are concerned about how long the process for capital gains tax to be paid is taking and are changing the legislation to ensure the time between completion and payment is significantly reduced.
What do you need to do to prepare for the changes?
Although the new rules are aimed at the buy to let market, they can catch an individual’s main residence, if the full main residence relief is not available. This could include such things as:
• periods of absence;
• periods abroad, etc.
Under these circumstances, you will also have 30 days to calculate your capital gains tax position, pay and report the liability to HMRC.
The changes mean that you will have a very short time period between completion and the capital gains tax payment. Consequently, it has never been more important for individuals to ensure their records are up to date so that they can provide their accountant with the information either prior to or very quickly after the completion date as HMRC will issue penalties for any late filing.
The timing of any loss generating disposals in the same tax year will also be critical to ensuring the minimum tax payment, with only losses generated prior to the property sale being included when calculating the tax liability. Whilst losses generated after the property disposal in the same tax year can still be utilised, this will not be until the submission of the annual self-assessment tax return, with the repayment of any overpaid tax being delayed accordingly.
How can Murray Harcourt help?
If you are considering selling a residential property one of our experienced personal tax advisors can assist you in planning to ensure the most efficient tax strategy and ensuring your returns are filed correctly and without delay.