Homeowners warned on ‘seismic’ shift in CGT rules

Capital Gains Tax

Homeowners have just over two months to prepare for the introduction of the 30-day payment window for Capital Gains Tax (CGT) on property sales. 


New rules are set to kick in for property owners with taxable gains on their residential properties from 6 April 2020.  


From 6 April 2020, property owners with taxable gains must send a new standalone online return to HMRC and pay any tax due within 30 days of completion of the sale. Owners that are likely to be affected are those selling second homes or buy to lets with taxable gains.


The new rules do not apply to the sales of main residences, which are usually covered by private residence relief.


The new filing and payment time frame is different from the current rules, where taxpayers have until the self-assessment deadline of 31 January after the tax year in which the disposal is made, to complete a tax return and pay the CGT.


Under the current system, depending on timing of the sale, CGT is due anything from 10 months to 22 months after the sale or disposal. Under the new 30-day deadline, people will have considerably less time to calculate the CGT, report the gain and pay the tax due.


The new return will need to be done online, requiring taxpayers to have a government gateway account. Taxpayers can either submit the return themselves or authorise a tax agent to do it for them.


The new rules will mean that property owners will need to have their records up to date in advance of the sale so that the 30-day deadline can be met and penalty charges avoided. Property owners will also need to make sure that full property details are readily to hand and include, the date the property was acquired, the acquisition cost and any details of improvements that have been made over the period of ownership.


Calculating the CGT due to HMRC will require the property owner to make a reasonable estimate of the tax payable. This is because the rate of CGT will depend on the taxpayer’s income in the whole tax year.


Taxpayers must estimate their income for the year so that the correct CGT rate of 18% or 28% is applied.


CIOT points out that this may not be a problem where income is steady and predictable but more difficult if income levels are uneven or more than one property is sold in a year, so affecting the overall CGT due.


The CIOT expects more details, possibly in the Spring Budget on 11 March, before the changes come in.