New tax rule hits UK residential property sales

A new rule from April 2020 means that capital gains tax must be paid within 30 days of the sale of a UK residential property. What problems is this going to cause?

Senior Tax Manager Olivia Down explains the new rule.

There is a major change to the administration of Capital Gains Tax (CGT) on the sale of UK residential property by UK residents from 6 April 2020

The current Self-Assessment system means that CGT is due anytime from 10 to 22 months after the disposal of the property. 

For example, the CGT payable on a residential property sale shortly after 6 April 2019 would not need to be paid until 31 January 2021, that is 22 months later. A sale close to 5 April 2020 would not need to be paid until the same date, now just 10 months later. 

New 30-day rule

With effect from 6 April 2020, a return needs to be filed and the CGT paid within 30 days of the transaction. Hence, whereas in the past the tax on a sale on 6 April 2020 would not need to be paid for 22 months, it now needs to be reported and paid within 1 month. 

If a property is made up of residential and commercial parts, any gain needs to be apportioned on a “just a reasonable” basis, with the residential CGT reported and paid within 30 days.

The UK resident individual must pay the tax due within 30 days, based on a “reasonable estimate”. They will therefore need to estimate their other income for the year so that the correct 18% or 28% CGT rate is applied. 

They must also take into account any other disposals of UK property which have already taken place in the year. If the estimate changes during the year (for example, if an individual’s other income is actually higher or lower resulting in a different rate applying) a further return is required correcting the original estimate.

Losses

A capital loss arising later in the same tax year cannot be used to correct the estimate, unless there is a further UK residential property sale. Otherwise the loss can only be taken into account after the end of the tax year through the individual’s Self-Assessment tax return.

Timing of disposals is therefore crucial if an individual is not going to suffer a cashflow disadvantage.

Who is affected by the new rule?

These rules affect UK resident individuals and Trusts only, not Limited Companies

Non-UK resident individuals, trusts and companies have operated under this regime since April 2015, with some further changes being applied from 6 April 2020.

Contact us for help

If you would like any help of assistance with your tax affairs, or would like to discuss the merits of selling an asset prior to 6 April 2020, please contact Olivia Down.