Capital Gains Tax (CGT) is a tax applied to the gain made of an asset you have sold. You pay tax on the gain, not the amount you sold it for, hence the name Capital Gains Tax.
From 6th April 2020, any individual, trustee or personal representative that realises a capital gain from the sale or disposal of a UK residential property will have to submit a ‘residential property return’ along with a payment on account within 30 days of completion of the disposal.
It’s important to note that submitting a return will not be required when selling your main residence as this is exempt from CGT. This only applies to additional properties, such a second home or any buy-to-let properties you might own.
This new 30-day reporting and payment system is very different from what’s currently in place. At present, CGT is payable by 31st January of the tax year following the sale/disposal. The new 30-day deadline is, therefore, a major reduction in the timescale between when you sell the property and when you pay tax on it. This is potentially problematic in situations where the capital gain calculation is complex.
Taxpayers who are within the self-assessment system will have to report the capital gain on their annual tax return as well as the 30-day residential property return (though CGT is only paid once). Confusingly, the relevant date of disposal for CGT is the date of the exchange of contracts whereas the 30-day payment window runs from the date of completion.
Ultimately, this change is taking place so that HMRC can get hold of their money sooner – before it is potentially spent elsewhere. This change means it’s more important than ever to seek professional advice when calculating your gain. By appointing a professional, you can ensure you are paying no more CGT than is necessary, as a competent advisor will factor in additional costs such as stamp duty, legal fees or any major renovations made to the property, as well as utilizing any available allowances. Including such expenses and allowances on your return will make the gain smaller, and so too your tax bill.
For more information and advice about this change, please contact us. One of our Tax Advisors will be happy to help you.