Residential Property& Capital Gains Tax ChangesExpected changes to have a significant impact forUK resident taxpayers!62 | fine
Significant changes to capital gainstax for UK resident tax payerson the disposal of UK residentialproperty have been announced. Theytake effect from 6 April 2020 and willhave a substantial impact for:• The payment date for capitalgains tax• Reducing the final period for mainresidence exemption• Restricting lettings reliefIn a small compromise, two extrastatutory concessions will become law.30 Day Payment for ResidentialProperty GainsFrom 6 April 2020, UK residents will berequired to pay tax on UK residentialproperty gains within 30 days ofcompletion. Alongside making payment,a tax return will generally have to besubmitted to HMRC within the sametimeframe. Helpfully, no tax return will berequired for no gain / no loss disposals,nor for disposals where no tax is due.The tax return is only for the capitalgains tax computation for the assetdisposed of. That might seemreasonable at first blush, but if the taxpayer has capital losses on the disposalof other assets, they will not be takeninto account. The tax payment willtherefore be a payment on account ofthe total capital gains tax liability forthe tax year with a further payment orrefund due on submission of the SelfAssessment tax return.The introduction of this tax return is anadditional obligation in the sales process.Currently, a return for Stamp DutyLand Tax is required within 14 days ofcompletion, and is usually completed bythe lawyers dealing with the conveyance.It is likely that early advice from yourtax advisor will be necessary to get afull grasp of the intricacies of the capitalgains tax computation, particularlywhere only partial main residenceexemption is available.Final Exempt Period for Main ResidenceExemptionIf a property has been the owner’s onlyor main residence throughout the entireperiod of ownership, then the capital gainarising is wholly exempt from capital gainstax. If however there is more than oneproperty used as a residence, there isthe possibility that the property disposedof may not qualify for main residenceexemption if another property has beennominated as the one to be regarded asthe main residence.When nominations are involved, quiteoften only part of the period of ownershipwill qualify for the exemption, although inall cases where the property qualifies inpart for the exemption, the final period ofownership will be deemed to be occupiedas the main residence in any event and willtherefore qualify for exemption in respectof this final period of ownership.This final period of ownership has been18 months since 6 April 2014. From 6 April2020, the final exempt period will in mostcases be further reduced to 9 monthsonly. For disabled persons and those livingin care homes, the final exempt period willcontinue to be three years after 6 April2020, which was the position existing forall tax payers prior to 6 April 2014.Restriction of Letting ReliefIn addition to the main residenceexemption, there was a further relief,known as “letting relief” which homeowners often claimed when selling aproperty which had been their mainresidence but which they had vacatedand let to tenants. Letting relief was upto £40,000 per individual, and thereforefor a couple could be up to £80,000.In addition, the letting relief could beavailable on multiple properties, if theyhad each qualified for the main residenceexemption. From 6 April 2020, whilstletting relief continues at £40,000, it willonly apply to those who share occupancywith the tenant. It is expected that thiswill significantly reduce the numberof disposals to which lettings relief isavailable.Late NominationsThe first concession to be legislatedrelates to late nominations specifyingwhich of two of more residences are tobe treated as the main one qualifying forthe main residence exemption. Normally,a period of two years from the date onwhich more than one residence is availableis allowed for making the nomination.Delay in Commencing OccupationThe second concession to be legislatedconcerns delays in taking up occupationof a main residence. Normally, the mainresidence exemption only accrues fromthe date occupation commences. If theproperty has not been the residenceof another individual between thedate of acquisition and the taking upof occupation, then that period will beFrom 6 April 2020, whilstletting relief continuesat £40,000, it will onlyapply to those who shareoccupancy with the tenant.a period of deemed occupation if theproperty is subject to building works(for up to 24 months), or the individual isdisposing of their previous or only or mainresidence (for up to 12 months).Planning PointsThere are a number of planning points:• On almost any analysis, if a sale ofa property is contemplated, then itshould be completed before 6 April2020.• The sale of a buy to let propertywhich has previously been a mainresidence is most likely to be affectedby at least one of these changes.• You will need to plan ahead to ensurethat the capital gains tax computationcan be prepared in time to meet thenew 30 day deadline for filing the taxreturn and payment of the capitalgains tax following a sale.Whilst representations have beensubmitted to HMRC in response to thesechanges by the accountancy and taxationbodies, it is expected that legislationenacting these changes will come intoforce on 6 April 2020, although it ispossible that some amendments to thecurrent draft legislation may be made.SummaryThe government’s focus on extractingcapital gains tax from residentialproperties is now firmly on UK residenttaxpayers. For the multiple residentialproperty owner, these changes will have asignificant impact and professional adviceis most likely to be needed.Stuart Ritchie is a chartered accountantand chartered tax adviser with over 30years’ experience having specialisedin private client taxation and in helpingindividuals and their families all hiscareer. He is a tax partner with RitchiePhilips LLP based in Horsham and can becontacted on 020 3195 1300 or atstuart.ritchie@ritchiephillips.co.ukYour money, your business | 63
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