January 28, 2020

Much noise is being made that HMRC are proposing several changes to the Capital Gains Tax (CGT) regime, and draft legislation outlining the proposed changes could have a serious impact on property owners considering a sale, especially when it comes to those who have second properties (perhaps whilst in the process of buying and selling) or holiday homes.

Capital Gains Tax (CGT) is payable when you sell (or dispose of):

  • most personal possessions worth £6,000 or more (excluding cars),
  • property that is not your main home,
  • your main home if you have let it out, used it for business or it is very large,
  • shares that are not in an ISA or PEP,
  • business assets.

There are however several reliefs that are available with regards to CGT. When a property that was the seller’s main residence is sold, a valuable relief called Principal Private Residence (PPR) relief ensures that no CGT is payable on any gain.

Currently, when you sell a property that has been your main home for only part of your period of ownership, the last 18 months of ownership is considered as the period of qualifying occupation for the purposes of the relief.

However, from the limited information that has been produced as regards the proposed changes, it appears that restrictions to tax relief are to be introduced in April 2020 which would mean that this period will be reduced to just the last nine months of ownership for property disposals after 5 April 2020.

This would mean that from 6 April 2020, individuals buying a new home, before selling their old one, will need to ensure a sale of the old property takes place within nine months to avoid a potential CGT charge.

Additionally another proposed tax change to the current Lettings Relief rules is also set to be introduced in April 2020.

Lettings Relief provides CGT relief for the periods when a previous main residence that is now rented out is sold. This is useful when either selling a former residence or indeed if you have bought a new home and selling your old home proves difficult and the vendor is obliged to rent it out while trying to sell it.

However from 6 April 2020, it appears that Lettings Relief may be reformed so that the relief only applies where the owner was in shared occupation with the tenant or lodger. Accordingly, it may be beneficial to sell such a residence before 5 April 2020.

A further mooted change relates to a new reporting procedure which we are told is be introduced which means that within 30 days of disposing of a property a ‘payment on account return’ will need to be submitted to HMRC along with payment of Capital Gains Tax due.

If you are currently thinking about selling an investment property or in the process of moving and expect your sale to settle after March 2020 , please note that the difference of a few days could mean thousands in Capital Gains Tax.

At the time of writing the above proposals have still to be fully ratified by the Chancellor, however if you have any concerns or wish to discuss the proposed sale or transfer of an investment property, please get in touch with our team urgently on property@mcdougallmcqueen.co.uk.