Capital Gains Tax reporting: another crackdown on buy-to-let landlords?

Last month we looked at the example of Mrs Lambert, who sold her residence and realised a capital gain. At present her tax bill is £1,400 but HMRC are consulting on changes to a valuable relief that would see her tax charge increase to £14,700 if she sells the property on or after 6 April 2020. (A link to that article can be found here). [https://www.larking-gowen.co.uk/insights/blog-changes-to-residence-relief-and-letting-relief/]

Our next question is, “When does Mrs. Lambert need to pay her tax bill?”

I’m sure you all know that, in the UK, the tax year runs from 6 April to the following 5 April. Tax returns need to be submitted by 31 January following the end of the tax year in question, and generally this is the date by which any tax liability needs to be cleared.

Capital gains tax rules, on UK residential property, are changing. If completion occurs on or after 6 April 2020, then you’ll need to deliver a return to HMRC and pay any capital gains tax (CGT) due within 30 days of completion.

So, continuing with Mrs Lambert above, if she sells her rental property on 1 July 2019 then her £1,400 tax liability will be due for payment on 31 January 2021.

If, however, she sells on 1 July 2020 then her much larger tax liability of £14,700 will be due for payment by 31 July 2020.

The computational aspects surrounding the sale remain unchanged and, where no tax is due (e.g. where private residence relief applies, or if there is a loss on sale), no 30 day CGT return is required. Either way, the sale may still need reporting on the individual’s self-assessment return. Where a payment is due within 30 days, this will act as a payment on account. If the tax liability changes when the year-end tax return gets submitted, then either a further top up payment or a tax refund may be due.   

Where contracts are exchanged pre 5 April (say 31 March), but completion is some time after, then both the old and the new rules work concurrently. The taxpayer’s self-assessment return for 2019/20 will need to include details of the sale of the property, as the date of exchange determines the tax return reporting year. The tax due on that return will be payable by the following 31 January, but the taxpayer will need make payment within 30 days of the sale completion date if this is sooner (which it inevitably will be).

There are some quirky rules about what constitutes residential property and what happens if you sell more than one property in a year. The main point is that for these rules ‘residential property’ doesn’t just mean a house. If you were to sell an area of your garden, without selling your home, then the chances are you’ll still be within the 30 day CGT reporting regime!

As I say, the rules come into effect from 6 April 2020 so, at this point, the guidance above is not intended to be a comprehensive statement of the law or represent specific tax advice but yet again you can see the government is trying to crack down on buy-to-let landlords.

Need help?

If you have any questions about these changes and how they might affect a future planned disposal then please speak to your usual Larking Gowen contact.

Call 0330 024 0888 or e-mail privateclientservices@larking-gowen.co.uk