"The art of taxation consists of plucking the goose as to obtain the most feathers with the least possible hissing."
So said Jean-Baptise Colbert, the finance Minister to Louis XIV. Buy-to-let investors could be forgiven for doing a lot of 'hissing' of late. Landlords profits have been hit by a host of new regulations and taxation changes in recent years.
Many have suffered from the tapering down of tax relief available through expenditure on fixtures and fittings as well as offsetting the cost of mortgage interest against their rental income. Now, the government are looking to collect capital gains tax (CGT) a lot quicker!
This means the delay between making a capital gain and paying the liability for CGT on property will soon be cut significantly.
Reducing the days to pay capital gains on property
As of 6 April 2020, new UK CGT rules on property mean the amount owed to HMRC will be payable 30 days after completion. This will impact on landlords selling rental properties and individuals who sell a second home where reliefs such as capital losses and principal private residence (PPR) aren't available.
These new rules will not apply to companies holding UK residential property but trustees and the estates of the deceased are also impacted.
How the new payment timeframe will work
Previously the CGT payment could be up to 22 months after the disposal of the asset. This meant a gain made in April 2017, for example, wasn't due for payment till January 2019. People did this by reporting the capital gains on the sale of residential property in their self assessment tax return. Any bill was then settled through payment on account.
Now with the new 30 day payment window approaching the method of declaration will change. if there is a gain on the sale of a property, you'll have to calculate the CGT you owe after using up your allowance and by applying the correct rate. To do this you'll have to fill in a new online property disposal return and that needs to be filed within 30 days of completion.
In cases of jointly owned property, each owner will have to submit a return. At the end of the tax year you'll still be expected to fill in your self assessment tax return and also detail the property gain. The CGT figure will be determined and applied through an "on account" payment which could then result in the repayment of CGT for many taxpayers.
Where there isn't a gain from the sale then a property disposal return won't need to be filed.
Things to consider
If you're in the process of selling a rental property or second home then you may want to get the transaction through before 5 April. That way you'll avoid having to fill in the return within 30 days while also ensuring you have the original 22 months available to pay your CGT liability.
Of note, the date of disposal for CGT is the upon which unconditional contracts exchange. If you're looking to bring a property disposal into this tax year then you need to have exchanged but not necessarily completed.
When calculating CGT on sale of property, remember that you can reduce your gain if you've invested in renovations to the property! Think of things such as extensions, adding a new floor, and loft conversions.
Be sure to seek professional advice, all the new rules impacting on buy-to-let and second properties are complicated. Many savvy landlords try to do these tax calculations themselves, using research from the internet, only to then run into plenty of problems.
The content of this post is up to date and relevant as at 27/01/2019.
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