Important changes to the reporting of property disposals
If you have a buy-to-let property, which you intend to dispose of, then there were three key changes in the Finance Act 2020 which may have a significant impact on the amount of tax you pay and the timing of this payment.
1. Capital Gains Tax (CGT) rule changes
From April 2020 if you sell a residential UK property and there is a Capital Gain to be declared, then you will need to prepare and file a new stand-alone CGT return (previously this calculation was included in your self-assessment tax return).
The main challenge will be that you have 60 days to file the CGT return following the date of completion. This deadline also applies to paying any tax due!
HMRC anticipates that your solicitor will handle this administration for you however, as they will require agent authorisation, this may not always be possible within the timescales and may result in penalty notices.
To prepare for this a4c have developed a new stand-alone CGT service to support clients with these disposals.
2. Private Residence Relief (PPR) rule changes
The amount of CGT payable on the sale of a second property can often be reduced by applying reliefs. The first is called Private Residence Relief (PPR) and allows the CGT calculation to give you relief for the period that the property was your main home. This includes a final period reduction, even if you didn’t live in the property at the end.
If you lived in the home at any point as your main residence then the final period relief is currently 18 months (this was 3 years up until 2015). From April 2020, the final period relief will reduce to 9 months. This could have an impact on the amount of CGT due.
3. Removal of Letting Relief
The other change is the removal of letting relief, in most cases. Until recently if you rented out your second home then you could claim letting relief, which reduced the amount of capital gains tax due.
From April 2020 letting relief will only apply if the property is occupied by the owner at the same time as the tenant. As the majority of people move out when they rent it (rather than share with a lodger) this letting relief can be considered as effectively abolished.