Tax Changes For Second Property Sales

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Tax Changes For Second Property Sales

Girlings’ Tax Manager, Joanne Beale, examines important changes to Capital Gains Tax (CGT) effective from 6th April 2020 from the perspective of individuals who have a second home/property to sell. The changes will see significant  alterations to the CGT reliefs available, as well as the time within which the CGT liability is collected. This means:

  • If you are in the process of selling your second property OR are yet to put your second property on the market, to benefit from the existing CGT rules it would be beneficial from a CGT perspective to consider exchange before 5 April 2020.

Do these changes affect me?

The changes will affect those who dispose of a second home or a rental property, i.e. residential properties that are not their main principal residence, through a sale, a gift or into a trust. 

From 6 April 2020 individuals or trustees disposing of a property will be required to submit a ‘payment on account return’ within 30 days of completion of the sale, notifying HMRC of the gain. They will also be required to make a payment on account of the CGT liability within the same timescale.

Currently the CGT due on the disposal of a property is not due and payable until the 31 January following the end of the tax year in which the gain arose.

How are existing reliefs affected?

Principal Private Residence Relief (PPR)

From the 6 April 2020 PPR will continue to apply to the full period an owner has lived in the property as their principal private residence.  There is however a major change in the relief for the final period of ownership which also qualifies for relief regardless of how the property is used in that time. This final period will reduce from18 months to 9 months.

Lettings Relief

There will also be a substantial change to lettings relief.   From the 6 April 2020, this relief will only be available to people who were sharing occupancy of a property, as their main home, with a tenant throughout the period of letting. 

What will be the impact of these changes?

The new measures will not only significantly increase the amount of CGT payable on the disposal of a second property, but also increase the burden of responsibility on the seller to ensure this is reported to HMRC and the tax paid within the 30 day window, following the date of completion of sale.  Failure to comply will result in penalties and interest being charged by HMRC.

As the following example illustrates these changes will have significant impact; in the illustration below for example, the CGT liability is more than doubled.

A property owned jointly by spouses, acquired ten years ago for £200,000, is sold for £600,000. The property had been occupied for the first four years of ownership and then let out until the sale.

The comparative CGT position for the sale of this property up to 5 April 2020 and after 6 April 2020 is set out below.

 

To 5th April 2020

 

From 6th April 2020

 

Spouse A

Spouse B

 

Spouse A

Spouse B

 

£

£

 

£

£

Proceeds

300000

300000

 

300000

300000

Less:

 

 

 

 

 

Cost

(100000)

(100000)

 

(100000)

(100000)

Chargeable Gain

200000

200000

 

200000

200000

Exempt Gain:

 

 

 

 

 

Period of Main Residence

80000

80000

 

80000

80000

Final Ownership Period

30000

30000

 

15000

15000

Total:

(110000)

(110000)

 

(95000)

(95000)

Lettings Relief

(40000)

(40000)

 

 

 

Chargeable Gain

50000

50000

 

105000

105000

Annual Exemption

(12000)

(12000)

 

(12000)

(12000)

Gain on which CGT due

38000

38000

 

93000

93000

CGT Due @ 28%*

10640

10640

 

26040

26040

 

 

 

 

 

 

CGT Payment Date:

31-01-2021

31-01-2021

 

30 days post completion

30 days post completion

 

*Tax rate will depend on personal circumstances

Next Steps

If you are considering selling a rental or second property or are in the process of selling a rental or second property and would like further advice on CGT, please contact Joanne Beale .

For advice on selling your property, please contact a member of our conveyancing team who will be happy to help.

Please read Reliance on information posted in our Terms of Website Use - see Legal section - before relying on this commentary. Article posted on 13 November 2019

 

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