From 6 April 2020, new capital gains tax (CGT) rules will apply to disposals of UK private residence property for UK residents.
Under current U.K. Capital Gains Tax legislation, an individual can claim relief for any period where the relevant property is occupied as the individual’s principal private residence (“PPR”), i.e., his/her main home.
To ‘better focus’ PRR on owner-occupiers, Budget 2018 announced changes to the final period exemption and lettings relief.
Final period exemption
With the final period exemption, you are not usually liable to CGT for the last 18 months in which you own a property, even if you don’t actually live there. This was intended to provide protection for someone moving to a new main residence when there was difficulty selling the original home.
But from April 2020, the final period is cut to nine months. The change could create CGT consequences for significantly higher numbers of property transactions. If buying a new property before selling the old, it will be important to try to sell within nine months to avoid a possible CGT bill.
There is an exception for those in, or moving into, care home accommodation, or those with a disability. Here there is a 36-month period, and this does not change.
At present, lettings relief gives up to £40,000 relief (£80,000 for a couple who jointly own the property) for someone letting part, or all, of a property which is their main residence, or was the former main residence at some point in their period of ownership. But under the anticipated new regime, lettings relief will only be available where you jointly share occupation with a tenant, which is likely considerably to reduce its scope.
Paying the tax
From 6 April 2020, there is also major change to the deadlines for paying CGT when disposing of a residential property. This may apply when a second home, an inherited property, or a rental property, is sold or otherwise disposed of.
In future, there is a 30-day window after the completion of the property disposal in which to file a return, calculate and make payment on account of the CGT bill. This changes the current procedure, with payment made as part of the self-assessment cycle, and CGT payable by 31 January of the tax year following the year of disposal. If no payment is due, reporting will not be required. This would be the case if, for example, PRR is available in full.
The change parallels current obligations of non-UK residents. Since 6 April 2019, non-resident CGT has applied to direct and indirect disposals of UK land or property, whether commercial or residential, with non-resident companies being chargeable to Corporation Tax on gains.
If you hold UK property either directly or indirectly and you have any concerns in relation to the upcoming changes to UK CGT, please contact a member of our tax team for further information.