Residential property
02 May 2018 News

More Change Ahead - Accelerating the Payment of Tax on Residential Property Gains

Where a UK resident individual realises a gain on the disposal of residential property such as a buy to let property or holiday home he currently has up to 22 months to report the gain and pay any capital gains tax (CGT) due. 

However, from April 2020 the rules are set to change with CGT becoming payable within 30 days of completion.   The rules also apply to Trustees.

The existing CGT payment on account system for non-residents disposing of UK residential property will be extended from that date so that non-residents within self assessment will also need to make a payment within 30 days.

HMRC have issued a consultation document explaining how they expect the new regime to operate and have invited responses on the process.

The key points are:

  • The regime will not apply where gains are not chargeable to CGT such as on the disposal of a property which has been the seller’s main home throughout the period of ownership.
  • The regime will apply to the residential element of mixed property disposals such as landed estates.
  • The seller will have to calculate the CGT due on the disposal and can take into account the annual exempt amount and unused capital losses realised before the disposal of the property.
  • The seller must submit a return showing the gain and pay the tax due within 30 days of completion.
  • The amount paid will be treated as a “payment on account” of the individual’s tax liability for the year.
  • Unless the individual sells another residential property in the same tax year, capital losses realised later in the year cannot be taken into account until the individual files his self assessment tax return. Only at that time can any overpaid CGT be repaid.
  • Where a second property is sold in the tax year an adjustment can be made to the earlier calculation to take account of subsequent losses and if a repayment is due it will be made following submission of the return for the second property.

Under the proposals an individual who intends to crystallise losses to reduce the tax due on the disposal of a property would need to carefully consider the timing of disposals to avoid paying tax which may not be repaid for a number of months.

As a firm with a dedicated tax team and a highly experienced residential property division we will be well placed to assist clients affected by the changes.

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