For those with additional properties as part of their investment portfolio, the changes that are due to come into effect from the new tax year will affect the time allowed to pay your Capital Gains Tax bill, the amount of tax relief you can claim if you previously lived in the property and how letting relief will work.
Tighter payment deadline
Because Capital Gains Tax (CGT) on a property is currently paid through your self-assessment tax return, it normally doesn’t need to be paid until the following tax year – so CGT incurred on a property sale in the 2018/2019 tax year doesn’t need to be paid until 31 January 2020.
However, the new rules that come into effect from April 2020 state that all CGT needs to be paid within 30 days of completion of the sale. Failure to do so will incur penalties.
Private Residence Relief (PRR) means homeowners selling their primary residence don’t have to pay CGT on profits. At present, if you own more than one home you are exempt from paying tax on the final 18 months that you owned the additional property, regardless of whether or not it was rented out.
From April 2020, this period is expected to be reduced to nine months. So, if you have not lived in a property that was once your main residence for more than nine months, you will probably need to pay some CGT on profits you make when you sell it.
Letting Relief changes
For those who qualify for PRR, it might also be possible to claim Letting Relief. This relief can reduce the Capital Gains Tax owed on a property by up to £40,000 of tax-free gains (£80,000 for a couple).
Letting Relief can currently be claimed if you used to live in the property you are selling and have also let out part or all of it for residential accommodation. You can claim the lowest of the following: the amount equal to the PRR you will receive; £40,000; or the chargeable gain you make from the period the property was let.
When the new rules come into force from April 2020, you will only be able to claim this relief if you live in the property when it is sold, i.e. if you share occupancy with your tenant.
Under current rules – and with no expectation of this changing – there are certain costs that can be deducted from CGT. These include:
- Stamp duty paid on the purchase of property
- Estate agent fees
- Solicitor fees
- Improvement costs (such as extensions)
- Qualifying buying and selling costs (such as surveyor fees)
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