From 6th April 2020, the way that Capital Gains Tax on property sales is calculated and paid is changing. In this article, we will outline the new requirements and how you can take advantage of the new rules.
Capital Gain Tax can become complicated due to different rules for different assets. It is recommended to speak to an expert tax accountant before you make any claims or submit any documents to HMRC.
How Is The Timing Affected By The New CGT Changes?
In the previous years, up to and including April 5th, 2020, tax due on the disposal of a property could be delayed anywhere between 10 and 22 months, depending on when the disposal took place. However, under the new rules, HMRC has accelerated the payment timeline.
What are the New Changes for Capital Gains Tax?
From April 6th, 2020, for any sales of a residential property where there is capital gains tax due, a return will need to be filed to report the gain to HMRC. Also, the notional CGT due will need to be paid. Both requirements are subject to a 30-day time limit, which starts from the date of completion.
This rule has been in effect for non-UK residents since April 2017, and from April 6th, 2020, it applies to UK residents as well.Â
Update: the accelerated payment timeline and CGT reporting is now set at 60 days from 27 October 2021 onwards.
Tip: The return that needs to be filed for CGT gains is different from a self-assessment tax return. There also might be some other circumstances where filing a return might not be required:Â
- The gain is exempt from schemes or reliefs such as the Availability of Private Residence Relief, Enterprise Investment Scheme Deferral or other reliefs.
- There is no tax payable because ÂŁ 3,000 of annual exemption is available.
- The gain will be decreased to zero due to brought forward capital losses.
Video: A Brief Guide to Capital Gains Tax
Watch the video to learn more about Capital Gains Tax, whether you are a Self-Employed, a Limited Company, a Sole trader or a Partner.
Related: Learn the tax aspects of selling your business and how to tax on gains.
What If There Is a Capital Loss?
If you have a capital loss when selling a property, you may not have to pay the returns. You still have to file the returns if you have capital gains on another property. However, you can offset the Capital gains against your Capital losses from the current year or can be rolled over from previous years.
Also, if you have filed a return and paid the notional tax for another property, you can get a refund on the notional tax if you report your property disposal loss.
Tip: The losses must be recognised before the property gain for it to be able to reduce the notional CGT, forcefully crystallising a loss to reduce the gain will not work.
How Do the New CGT Rules Affect Self-assessment?
It may seem like the new return and charge have replaced the self-assessment return that needs to be filed. However, you still need to file a self-assessment in which you report your gains/losses from the sale of a property. The notional tax you pay will be considered as a payment on account for the CGT for the year.
Related: Read our comprehensive Guide on Self-Assessment or speak to our accountants for help with self-assessment online.
Tip: You should file your return as soon as possible and give your tax accountant all the necessary information as soon as possible after April 5th. If some information is unavailable, you can ask them to file a return with estimated figures which they can revise as and when the information becomes available. Also, you may be able to push back the payment date of the notional tax to the self-assessment date, if the due date for the return is after the self-assessment is submitted.Â
How Are Claims Affected By The New CGT Rules?
When calculating the notional tax, claims for relief, such as Private Residence Relief, can be taken into consideration. Nevertheless, the claims must also be claimed in the self-assessment for them to be effective.
How Do I Calculate Capital Gains Tax On Property Sales?
You may use publicly available capital gains tax calculators or calculate simply by deducting the allowable costs and ÂŁ3,000 (2025-26) of annual exempt amount from the gains you got after selling the property. You can now apply the applicable tax rate of 18% – 24% on the amount left.
How Much Capital Gains Tax Will I Pay If I Sell A Property?
It mainly depends on the exemptions, allowable costs, your income, and the type of property (whether it’s a residential or a commercial property). If the gains after selling your property and your income are below £50,270, then you will have to pay 18% on your profits. If your gains and income exceed this threshold, the amount above £50,270 will be taxed at the additional rate of 24%.
Do I pay 18% or 28% CGT?
Now, Capital gains tax rates on selling property align with capital gains on other things, so you get taxed according to the basic rate, which is 18% on income and gains below the threshold of ÂŁ50,000, and anything above that threshold will be taxed according to additional tax rates, which are 24%.
How to reduce Capital Gains Tax when selling a property?
There are a lot of ways to avoid or reduce your Capital Gains tax, including:
- Capital Gains Tax allowance, which is an annual allowance set at ÂŁ3,000 with no option of rollover.
- Offset your capital Losses against capital gains
- Transfer or gift money or assets to Spouse or Civil Partnership
- Deduct allowable costs
- Reduce taxable income if you can
- Contribute to the NI Pension to reduce taxable income
- Hold your cash in an investment through an Individual Savings Account
- Make donations to charity
- Private Residence Relief
- Consider EIS after consulting your accountant
- Ask your Accountant for more options
What Are The Challenges With The New CGT Rules?
One of the main challenges with the new Capital Gains Tax rules is the time limit. That is why it’s imperative that you hand over all the necessary information to your accountant as soon as possible. In some cases, your conveyancing solicitor might file the return for you. However, your accountant will be in a better position to complete your return as they know your entire tax situation, so that you are not overpaying the notional tax.
Tip:Â Contact your accountant before the completion date for any and all property disposals, so they can advise you accordingly, even if someone else like a conveyancing solicitor is creating your return.
Related: Stay updated on how the UK government has provided relief for businesses during the COVID-19 pandemic by going through the budget summary 2020 curated by our accountants.
Summary
For UK residential property disposals where tax is payable, you must make sure that you report and pay a national CGT charge within the first 30 days of completion. If the exchange of contracts happens just before the end of a tax year, ask your accountant to submit your self-assessment return first. By doing this, the payment date will be extended to 31st January.
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