Buy-to-let landlords and owners of multiple residential properties will soon have a shorter time frame in which to pay capital gains tax owed from property sales.
The Association of Taxation Technicians (ATT) has warned that HM Revenue & Customs (HMRC) is set to bring in new rules from April 2020. Landlords and trustees selling a residential property will be required to make a payment on account of the capital gains tax derived from any sale within just 30 days of the sale’s completion.
Currently, if capital gains tax is owed by an individual or trustee, a disposal must be reported to HMRC in the relevant self-assessment tax return.
Within the self-assessment, any capital gains tax owed during a tax year must be paid in full by 31st January following the tax year of disposal.
For example, if a buy-to-let landlord completed the sale of a property on 1st October 2018, the existing rules mean that any capital gains tax derived from this sale would be due on 31st January 2020.
The new proposed rules would require the same seller to pay their outstanding capital gains tax in full by 1st November 2018.
HMRC fears the payment window before any capital gains tax is paid is too long at present. Nevertheless, whether a 30-day window is feasible for sellers to calculate the amount of capital gains tax due, inform HMRC and pay it in full remains to be seen.
Jon Stride, Co-chair, ATT’s technical steering group, said: “The new rules will significantly reduce the amount of time that those selling residential property will have to calculate and pay their CGT bill.
“CGT computations can be complex, and it can take time to establish all the necessary facts to make an accurate computation of the taxable gain.
“Sellers will need to start gathering information and details of historic costs, or date of occupation well in advance of the sale.”
The ATT adds that ‘in year’ reporting may prove particularly confusing to some individuals who won’t be aware of the applicable rate of tax at the time of each disposal.
The applicable rate of tax for any capital gains tax is linked to the seller’s overall income for the same tax year, with only a ballpark figure possible if the disposal is made midway through the tax year.
Those selling their only property or primary home are not likely to be affected by the new capital gains tax proposals due to full private residence relief.
If you are considering selling a personal asset or all or part of your business, your local TaxAssist Accountant can advise you of the tax planning opportunities before making your disposal to HMRC. This can mitigate or reduce potential tax liabilities.