Major changes to the tax regime for gains made from the sale of residential property will take effect from April 2020. They will affect how and when your clients are required to report and pay capital gains tax. What's the full story?
Current CGT deadlines
Currently, capital gains made by individuals are reported through self-assessment. This means, for example, if your client sells a property between 6 April 2019 and 5 April 2020 they must declare it on their tax return and pay the tax they owe no later than 31 January 2021. New rules will apply for 2020/21 onwards meaning that the tax payable on certain types of gain will be due up to 21 months sooner. A recent report from HMRC shows that taxpayers likely to be affected by the new rules are not properly aware of the changes.
The new rules apply where tax is payable for gains made from the sale of residential property located inside or outside the UK on or after 6 April 2020. Clients have just 30 days following completion to submit a provisional calculation of the gain and pay the estimated tax due. They will still be required to declare the gain on their self-assessment tax returns and pay, by the usual self-assessment deadline, any CGT due over and above the provisional payment.
Tip. The 30-day declaration and payment applies whether or not your client is in the self-assessment system. If they aren't HMRC says it will not require them to register for self-assessment just because they've made a capital gain. Instead, after the tax year in which they've made a gain ends they'll be required to review the provisional calculation and make any changes needed.
Estimating the CGT
To work out the provisional CGT bill you'll need to estimate your client's taxable income for the year to determine how much CGT is payable at 18% and how much at 28%.
Tip 1. You'll be allowed to reduce the gain liable to tax by capital losses brought forward from earlier years and those made in the same year as the gain up to when the provisional calculation was made.
Tip 2. If your client intends to sell assets which will make a loss, say shares, consider making the transaction before they make a gain reportable under the 30-day rule. That way you can take account of the loss when working out the provisional payment.
No going back
Once the provisional calculation has been submitted and the tax paid, it can't be reduced, say because your client made a capital loss later in the year, until they submit their self-assessment return or year-end review. There will also be penalties (details aren't yet known) for errors and for failing to meet the 30-day deadline for reporting a gain and paying the tax.
A wider net
The new reporting deadline coincides with the cuts in the reliefs for capital gains on the sale of residential property where it was your client's home. This means there will be more taxpayers caught in the CGT net and so subject to the new 30-day deadline.