What is Capital Gains Tax on Property?

If you sell a property in the UK, you may need to pay Capital Gains Tax (CGT) on the profits you make. This will generally not apply when you are selling your main home however it will if you sell a property that is not your main residence, for example, a rental property or second home.

Currently (the 2019/20 tax year) basic-rate taxpayers pay 18% on gains they make when selling property, while higher and additional rate taxpayers pay 28%. 

Each year all taxpayers have a Capital Gains tax-free allowance below which you don’t need to pay tax. In 2019/20 the allowance is £12,000.

The Autumn Budget 2018 introduced some changes to Capital Gains Tax on property.  This blog, based on an article by Rebecca Benneyworth in Taxline Publication, is an important read for anyone who may sell a property that is not their main residence on or after the 6th April 2020.

What changes to Capital Gains Tax were introduced in the Autumn 2018 budget?

A number of changes were introduced, the first being to do with the timing of reporting and paying Capital Gains Tax on disposals of properties. 

The other changes that were announced will reduce the reliefs available to landlords. These are not covered in this article.

From the 6th of April 2020 any capital gains tax due on the disposal of residential property by UK residents will need to be reported to HMRC and paid within 30 days of the date of the disposal.

What does this mean?

This means that capital gains on the sale of properties will need to be reported, and the tax paid much sooner than has been the case in the past. Rather than reporting and paying any tax due in a Self-assessment return by 31st January after the sale, a separate return will need to be filed to HMRC within 30 days of the sale. Tax will need to be paid at the same time.

Failure to file a report and pay the tax will result in HMRC imposing interest and penalties.

The final calculation of the total CGT liability for the year will happen, as is usual, through the self-assessment system.

It is worth noting that HMRC intends to assist with payment terms in the event that a taxpayer cannot make the payment within 30 days, for example where there is delayed receipt of proceeds or where the property has been gifted.

Why is it being introduced?

The Government is seeking to speed up the receipt of taxes by HMRC. It currently takes anywhere between 10 and 22 months for the capital gains tax to be paid. The changes will reduce this to 30 days.

Who will be affected by these changes?

Anyone with a second property, for example, a buy-to-let, will be affected if they sell it on or after 6 April 2020.

These rules apply even if no money is changing hands so, for example, if a property is gifted to a family member.

What do I need to do?

If you are thinking of selling a property (not your main and only home) on or after the 6th April 2020, you should let us know as soon as possible. This will give us time to gather the relevant information so we can help complete the necessary return within 30 days. It will also give us time to advise you about how much tax you will need to pay as a payment on account to HMRC so you can put aside money from the sale to pay the tax due. View more on our finance team helping you with 2nd property tax.