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Capital Gains Tax – Changes to payment deadlines on residential property disposals

If you are in the process of divorce there is very likely to be a property sale involved.  In this article our guest writer, Leanne Hickmann from Richardson Accountants warns about tax implications and what to be aware of under new capital gains tax changes.

For many, owning and selling their own home is thought to be tax-free, but, as always, tax is never quite as simple as that. Usually, when selling your main residence, most people will be exempt from any Capital Gains Tax (CGT) due to Principal Private Residence Relief (PPR).

However, there can be complications when a property has been let for some or all of the period of ownership and this can mean that CGT will need to be calculated and the tax paid over to HMRC.

Under the old rules, if you were to sell a property that didn’t fully qualify for PPR Relief, the CGT would need to be calculated on your self-assessment tax return for that year, and any tax payable would not be due until the 31 January following the end of the tax year in which the gain arises. This in effect meant that if you sold a property on the 6 April 2019, the tax on this gain would not be due until 31 January 2021, giving nearly 22 months to calculate and pay any tax due.

However, the new rules – which took effect from 6 April 2020 – mean that all Capital Gains Tax will be payable within 30 days of the sale, gift or disposal of the property being completed. This means that if a property has been sold on or after the 6 April 2020, the tax will need to be calculated and declared on a CGT return and any tax due would need to have be paid by 6 May 2020. However, if it was sold a day earlier on the 5 April 2020, the taxpayer will have until 31 January 2021 to calculate and pay the tax!

There are also other unfavourable changes which came in from 6 April in relation to “Lettings Relief” and the availability of the final period of ownership when calculating the PPR relief due, which could result in significantly more CGT being due than if the property had been sold prior to the 6 April 2020.

Please note that, due to COVID 19, whilst the introduction of this new reporting system has not been delayed, HMRC have confirmed that it will not charge late filing penalties for late reports of CGT on disposals of UK residential property by UK residents provided they are still made by 31 July 2020. (Any interest on late payment of tax may still be charged).

If you need any further advice regarding the capital gains tax changes, please contact Leanne via email.

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