16 Dec MUST READ: How Capital Gains Tax Rules Are To Change From April 2020
From 6th April 2020, the window for payment of Capital Gains Tax on property is changing for UK residents. Other changes are also taking place that will affect non-UK resident individuals and companies selling properties in the UK.
What are the new requirements for UK individual residents?
At the moment, UK individual residents use self-assessment to declare any CGT incurred from the sale of residential property. It then must be paid by 31st January in the next tax year, giving a long window for the tax to be paid.
However, when the changes are introduced, individual UK residents must give HMRC their CGT return form within 30 days of the sale’s completion. Then, the full amount must also be paid in this 30 day period. If it isn’t paid on time, interest and penalties will be put in place. Furthermore, the new rules also apply where no money is involved, such as transferring or gifting property to another person or trust, so don’t be caught out.
When will the new requirements not apply?
In some circumstances, the new requirements on reporting and paying CGT won’t apply. For example, when the gains from the sale do not incur any CGT, when taking into account other sales that have been made in the same tax year. This will most often apply when the gains are covered by principal private residence relief. In other words, the sale of your main home is usually exempt from CGT.
Also, if the gain is made by the sale of a residence in a country covered by a CGT double taxation agreement, the new requirements won’t apply either.
What about CGT on UK properties for non-residents?
Since April 2015, all non-resident individuals have needed to complete a Non-Resident Capital Gains Tax Return and return it to HMRC within 30 days of the sale of a UK residential property. They also need to calculate and pay the full amount of the CGT liability within the same period. However, when individuals who already complete self-assessment fill out these non-resident CGT returns, they can also elect to pay it in this way. It then is not payable until January 31st of the next tax year. But, this will no longer be an available option from April 2020. Instead, the same rules that apply to UK individual residents will apply in these circumstances.
CGT legislation was expanded in April 2019 to include non-residential properties and land sold by non-resident trusts and companies, which CGT previously didn’t apply to. At the moment, All non-UK companies that make gains on the sale of UK property will be charged corporation tax instead of CGT. Non-UK residents will also be taxed for the indirect disposal of any land located in the UK. This applies when somebody disposes of something which has a gross asset value which is at least 75% derived from UK land. But, an exemption will apply for investors who have an interest of less than 25% in it. For indirect disposals, any gains won’t use the value of the UK land to be calculated. Instead, they will be worked out using the value of the asset itself.
HMRC has issued a policy paper with a detailed explanation on the changes, who is likely to be affected, and the policy objective with a summary of the impacts that will come from the change in law.
The Clock is ticking!
Were you aware of the new legislation, and do you think that these are positive changes? Is this new law making you think; sell now ahead of 6th April 2020?
Would you like more information about the new law?