Changes to Capital Gains Tax on residential property sales
With big changes to the way Capital Gains Tax (CGT) due from residential property sales is reported and paid coming on 6th April, it is important to understand how this could affect you.
What are the changes?
The impending changes primarily reduce the time period allowed to report and pay the Capital Gains earned on residential property sales. The CGT has thus far been computed in tandem with the year end personal tax return, with tax not being payable until 31 January following the tax year. The new timescale will make the tax payable on residential property sales within 30 days of the sale and will require a separate return to be submitted.
Why are the changes being made?
In the current system, taxpayers have had between 10 and 22 months to pay CGT following the sale, resulting in a largely delayed yield for the government. By dramatically reducing the permissible timeframe, the treasury will receive additional revenue equal to roughly one and a quarter year’s tax; estimated to be between £5bn and £8bn.
The new Tax Return
Although the contract exchange date will be used as the date of sale for CGT, the 30-day countdown will be triggered instead using the completion date of the sale. The same rules as the personal tax return will apply for making amendments following a submission, and the returns could also be subject to an enquiry as per the current framework.
Payments and tax calculations
Any tax calculated to be owed on residential property sales must be paid within 30 days of the disposal, as calculated in the new CGT return. This must be made as a standalone computation and cannot be calculated in conjunction with other capital gains or losses. In effect, this makes the CGT on residential property sales an interim payment against the final CGT liability that will be calculated through the self-assessment system.
Get in touch
With a change as dramatic as this, we are hoping that the treasury will be lenient in issuing penalties to unsuspecting taxpayers. That being said, it is important to inform your accountant when making a residential property sale as soon as possible going forwards. For more information, or help making your Capital Gains Tax return going forward, please email misty@griffinaccountancy.co.uk or call 01392241228 – we would love to help!
