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February 19, 2020

Tax Update: 2020/21 30-Day CGT Deadline

The rules regarding the administration of Capital Gains Tax ("CGT") have been overhauled, with significant changes to the reporting and payment requirements coming in from 6 April 2020.

These changes represent a significant acceleration of the tax payment and reporting requirements that currently apply.

Current Position

Under the current rules, on the disposal of residential property UK residents are required to report the gain/loss and pay the tax due by 31 January following the end of the tax year in which the disposal took place.

For example, where a property was sold in the 2019/20 tax year, the gain must be reported and tax paid by 31 January 2021.

With this in mind, CGT can become due anywhere between 10 and 22 months following the date of disposal.

What Will Change?

From 6 April 2020, on the disposal of residential property taxpayers will be required to submit a return to HMRC and pay "notional" CGT due within 30 days of the completion date.

The notional CGT due is calculated by taking the sale proceeds and deducting the original cost of the property, any associated costs of acquisition/disposal, and the expenditure incurred on enhancing the value of the property.

Furthermore, where no other residential properties have been sold during the tax year you can also deduct the annual exemption (£12,000 for 2019/20) from the gain.

When determining the notional tax due, you may take into account brought forward capital losses from earlier years and losses realised earlier in the tax year. If you make losses later in the tax year, relief can only be provided through the submission of a self-assessment tax return.

As CGT is charged at 18% on gains falling within your unused basic rate band and 28% on the excess, if you are a basic rate taxpayer you will need to estimate your income for the tax year in order to determine the level of the gain to be taxed at each rate.

Where an estimate changes following the submission of a return, it will be possible to submit a further return to correct the estimate and claim a tax refund if appropriate.

It is important to note that the notional CGT is merely an interim payment of tax; the final liability calculation (e.g. taking into account losses made later on in the tax year) will be determined through the submission of the self-assessment tax return.

Any Exemptions?

There are a number of cases when you will not be required to submit the CGT return within the 30 day deadline:

  1. If Private Residence Relief is available on the entirety of the gain.  In practice, this will be the case where you sell a residential property which you have lived in throughout the period of ownership;
  2. The transfer is a no gain/no loss disposal (e.g. between spouses);
  3. The gain is covered by the annual exemption;
  4. The gain is covered by brought forward capital losses.

I am Non-UK Resident. Will it Affect Me?

Non-UK residents have been required to file returns and pay the CGT due on the sale of residential property within 30 days of the completion date since April 2015.

Currently, taxpayers who are registered for self-assessment tax returns can apply to defer the payment of tax until the 31 January deadline.

From 6 April 2020, non-UK resident taxpayers will be required to submit the return and pay the tax within the 30-day deadline, effectively aligning the UK and non-UK resident regimes for residential property.

What Should I Do?

Going forward, you should notify your accountant or tax advisor as soon as a sale is agreed so they can assist with calculating the CGT due and making the relevant returns by the new deadline.

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