Capital gains tax on property: changes from April 2020

Posted 06/01/2020

What is capital gains tax?

Capital gains tax is a tax on the profit made through the sale of lettings properties. It’s the gain made on the sale that’s taxed, not the amount of money received. The capital gains tax allowance in 2019-20 is £12,000. This is the amount of profit you can make from an asset this tax year, before any tax is payable.

What is changing?

From 6 April 2020 the rules on capital gains tax are changing. There are 3 main changes that Holmes & Hills would like to inform their clients of.

  1. Lettings relief

CURRENT RULES: If you sell a residential property which at one time was your main residence but has since been rented out, you will be able to deduct a ‘letting relief’ of up to £40,000 from any capital gain. Where the property is jointly owned, each owner receives the £40,000 relief.

NEW RULES: From 6 April 2020 this relief will only apply if the letting of the property occurred while the owner was living in the property. It is hard to imagine there will be many scenarios where this situation applies.

In short, there will be a significant reduction in reliefs available.

  1. Principal private residence relief

CURRENT RULES: Where a property has been the owner’s only or main residence at some point, the last 18 months of ownership will qualify for relief even if the owner has not lived there (to allow for the practicalities of moving).

NEW RULES: From 6 April 2020 this relief will only be provided for the final 9 months of ownership i.e. it can only be empty for 9 months, not 18.

  1. Payment deadline

CURRENT RULES: Any capital gains tax is recorded on an individual’s personal tax return and must be paid by 31 January following the end of the tax year.

NEW RULES: From 6 April 2020 it will be necessary to submit a provisional calculation of the gain to HMRC and pay the tax that is due within 30 days of completion of sale.

How will these changes affect Holmes & Hills clients?

These changes will increase the capital gain payable, and reduce the time required for payment to be made to HMRC. This may therefore prompt some of our clients who are buy-to-let landlords to sell before the April 2020 deadline in order to maximise their profits.

How can the effect of the April 2020 changes be mitigated?

You can take various steps in order to minimise the effects of the changes to capital gains tax. These include:

  • Seeking specialist accountancy advice
  • Selling property before 6 April 2020
  • Transferring property ownership (property in the joint names of a married couple can maximise allowance and potentially lower the rate of CGT)
  • Gifting property to a family member before 6 April 2020.

To receive specialist advice on matters concerning your property, contact Holmes & Hills residential property lawyers on 01376 320456.

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