Capital Gains Tax (CGT) is payable when a property is sold which does not qualify for private residence relief, double tax relief or where losses are made. CGT therefore applies, for example, when a second home, rental property or an inherited property is sold or disposed of.
Currently, CGT on property disposals does not have to be reported or paid until the deadline for submitting a Self-Assessment tax return. This can be due between 10 and 22 months after the disposal took place.
However, from April 2020 onwards, CGT will be payable within 30 days of completion of sale of a UK property which does not qualify for tax relief. Payments made will be credited against the individuals’ CGT and income tax liability for the tax year when their Self-Assessment tax returns are completed and submitted to HMRC.
The new rules will also affect trusts which hold and dispose of residential property and will extend to interests in UK property entities, i.e. if you dispose of shares in a company where 75% or more of the value comes from property.
The reason for the April 2020 implementation of this change is to allow UK taxpayers to find out about the change in advance of implementation.
However, it is possible that despite HMRC’s attempts at publication, many UK tax-payers will not be aware of this change in advance of April 2020. A recent report published by HMRC found that a significant number of ‘one-off’ taxpayers (those who were new to the disposal of property and had little knowledge of CGT) were unlikely to be informed about CGT because they did not use formal support, such as agents or solicitors, for guidance on CGT.
Further, the report found that customers generally demonstrated significant difficulty with reading and understanding the HMRC documents on CGT. Levels of understanding varied depending on the customers’ level of experience but broadly, all customers had difficulty with understanding what was being communicated.
If you require advice on the issue of CGT, particularly in relation to the disposal of property, please do not hesitate to contact our Private Client Team.
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