With effect from 6 April 2020, the due date for calculation and payment of capital gains tax (CGT) on the sale of residential property will be brought forward from 31 January after the end of the tax year in which the sale takes place to 30 days after the sale.
This would include buy-to-let properties and second homes.
The completion date will trigger the 30-day period.
The changes will apply to disposals on or after 6 April 2020.
Previously, CGT has been reported on the self assessment tax return for the tax year in which the sale occurred, and any CGT due paid across to HMRC by the 31 January following the tax year.
As a result of the changes, the gain(s) will still be reported on the relevant self assessment tax return, however the calculation and payment of the CGT will be done separately at a much earlier date. Before the rule change the taxpayer had between 10 and 22 months to pay CGT, however this will soon be accelerated to 30 days.
Where there is no gain or no loss, or no CGT due on the sale then no standalone return will need to be submitted and no capital gains tax would be payable.
The CGT payable after the 30-day period is effectively a payment on account (an amount notionally due), and capital gains not covered by the new rules would not be considered when making standalone payments and returns. The final calculation of total CGT will still be made via self assessment.
If it turns out that CGT is overpaid, any overpayments will not be repayable until after the relevant tax return is submitted.
There are different rates of CGT depending on the rate at which the taxpayer pays tax, so the taxpayer would need to anticipate the correct rate of CGT based on total income for the year – chargeable gains on disposals of residential property not qualifying for principal private residence relief are subject to either 18% (for basic rate taxpayers) or 28% (for higher/ additional rate taxpayers).
Due to there being such a small window in which to calculate the CGT and pay this across, it is vital that anyone affected either makes their own calculations ASAP, or lets their accountant know ASAP in order that unnecessary penalties can be avoided.
It can take time to gather together all the relevant information to calculate the correct amount of CGT due, so time really is of the essence.
By ensuring that all relevant information (such as original cost, improvement costs etc.) are on hand, this will help ensure the correct amount of CGT is calculated. It will also help you to set the correct amount aside and avoid potential overpayments at the end of the 30-day period.
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