Residential housing tokensThe capital gains tax (CGT) laws on the sale of residential property are getting tighter in 2020.

First, buy-to-let landlords will lose out on letting relief, which historically has been a valuable relief. This is probably unlikely to impact on many of our clients, but it will hurt some.

Perhaps more relevant may be the reduction in the final period of ownership that automatically qualifies as a period of occupation to relieve CGT. Over about the last 6 years this period will have been reduced from 3 years to a mere 9 months. Many clients who would previously have had no CGT worries may find themselves caught. For example, elderly clients moving into a "granny annex" at a child's property will need to sell their home within 9 months of moving to be sure of avoiding CGT.

Both of the above changes are likely to be dwarfed in significance by the changes to reporting requirements on the sale of UK residential property and the payment window for CGT coming in from 6 April 2020. Clients will have 30 days from completion to report gains and pay the tax. This applies to individuals, personal representatives and trustees. It does not cover companies.

Why is the government reducing the time to 30 days? In a word 'money'. The change is expected to produce a one-off tax bonanza of over £5 billion in the coming tax year. At present the system allows up to around 22 months to pay CGT so the government's desire to accelerate payment is not surprising. However it will present some real challenges to sellers:

Sellers will need to prepare computations of gains early by gathering all relevant details such as expenditure of the property being sold which can be used to calculate the gain. Failure to prepare adequately is likely to lead to an inaccurate or delayed return, both of which can lead to penalties.

Previous disposals for CGT such as sale of shares or other property or gifts will be relevant to the computation, meaning that computations for more sophisticated clients are likely to be complex.

Precise computation of CGT is dependant on income in the tax year. Under the current deferred payment system, income is known by the time the return is due. Income will often not be known under the new system. Accordingly, clients will also have to file the CGT pages of the self assessment return and in many cases that may result in an additional payment or recovery of CGT already paid.

The change in the reporting and payment window is likely to pose significant challenges to clients and professionals alike. One positive is that the government has excluded residential sales that do not trigger a gain from the ambit of the new rules. When similar rules were introduced for non-residents a few years ago there was a duty to file a return irrespective of whether gains arose. This led to a raft of penalties for the unwary. We should be grateful for small blessings.

Important guidance on articles published by Fitzhugh Gates Solicitors

Articles published through this website contain only general advice and are not intended as professional counsel and should not be used as such.

If you require specific advice on a particular issue or problem highlighted by this article, then please contact Fitzhugh Gates, the Solicitors for Brighton and Hove and Shoreham-by-Sea. 

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