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Changes in Reporting & Payment Regime of CGT on Disposal of UK Residential Property from April 2020

There are certain fundamental changes UK government is willing to make on reporting and paying of capital gain tax on disposal of UK residential property. These changes will be applicable on disposal of residential property on or after 6th April 2020.

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Current Regime

As per the current regime, if any individual disposes his or her property between 6th April 2018 to 5th April 2019 (taken as example), the individual needs to report capital gain tax in his or her 2018-19 self-assessment tax return which he or she can submit until 31st January 2020 inspite of the tax becoming due from the very same day. Current regime means that it can be anywhere up to 22 months before the CGT is returned and settled (same in case of trust & partnership).

New Regime

UK government proposed to make certain changes to this current regime and planning to make these changes applicable on or after 6th April 2020 on disposal of residential properties. These changes are not applicable on UK resident companies. These rules are already exists under a similar regime for non-residents. The government expecting that UK residents should make the following changes in reporting and paying of CGT within 30 days of disposing of any UK residential property –

  • UK residents should prepare a provisional CGT return
  • They should make a provisional payment on account of liability to be paid immediately.

This new regime will be in addition to the existing CGT aspects of self-assessment. Therefore, individuals have to fill the CGT pages of their self-assessment tax returns and have to pay outstanding CGT tax by 31st January of the next year in question. The government is planning that the taxpayer should –

  • Make an estimate of his or her income for the tax year to measure how much gain is taxable at 18% and how much is taxable at 28%.
  • Offset any capital losses that one brought forward or already arisen in the tax year before disposing any residential property.
  • Ignore any gains other than on residential property made by you in the tax year in order to get benefited from the annual CGT exemption and losses to date.

Reporting and making a provisional payment of Capital gain tax within 30 days from the disposal of residential property is a very short time reporting window for taxpayers as well as their advisors unfortunately as they have to do the complex task of putting together all provisional calculations including details such as original costs, incidental cost on acquisition, enhancements etc. which is a more complex task in case the property has been owned for many years.

Exemptions

There are some exemptions to provisional reporting too which applies in case when there is no capital gain tax to pay –

  • If “No-gain/No-loss” transaction takes place such as between spouses & civil partners.
  • If the gain is covered by private residence relief.
  • In case any losses or annual exemptions are enough to cover the gain.
  • If there is no method to reduce CGT payments on account (in order to get some of the provisional CGT back) in case the tax payer makes a capital loss later in the tax year.

Conclusion

In order to conclude this new regime, I want to say that this new regime puts extra reporting responsibility on landlords in case they are planning to sell their properties in the coming future. We are informing you in time so that you can plan the sale of your residential property accordingly before 6th April 2020 to avoid any difficulty at the last moment.

Please feel free to get in touch with us in case you feel any confusion related to reporting & payment of CGT tax in filing self-assessment tax return.

Note – This is only applicable on sale of residential property and not on sale of share or commercial property.

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